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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?

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

\$2.19