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    Dollar-Value LIFO / Gross profit method

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    1. Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2006. Its inventory at that date was $220,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:

    Inventory at Current
    Date Current Prices Price Index

    December 31, 2007 $256,800 107
    December 31, 2008 290,000 125
    December 31, 2009 325,000 130

    a) What is the cost of the ending inventory at December 31, 2007 under dollar-value LIFO?

    b) What is the cost of the ending inventory at December 31, 2008 under dollar-value LIFO?

    2. The following information is available for October for Jordan Company.

    Beginning inventory $ 50,000

    Net purchases 150,000

    Net sales 300,000

    Percentage markup on cost 66.67%

    A fire destroyed Jordan's October 31 inventory, leaving undamaged inventory with a cost of $3,000. Using the gross profit method, the estimated ending inventory destroyed by fire is?

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    Solution Preview

    1. In dollar value LIFO we calculate the layers because the inventory would comprise the earliest purchases.
    Convert the value to initial cost = 256,800 /1.07 = $240,000
    Then check for layers starting from the initial year.
    In 2006 the inventory was 220,000. Remaining is 240,000-220,000=20,000 which is for 2007 with ...

    Solution Summary

    The solution explains two questions - dollar value lifo method and the use of gross profit method