2nd Edition

ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…

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Textbook Question

Chapter 10, Problem 10.4P

Dollar-Value LIFO. The Happenings Company adopted the dollar-value LIFO inventory method on December 31, 2017, when the price index was 1.00. Ending inventory on the date that it adopted dollar-value LIFO follows.

Item	Number of Units	Total FIFO Cost
MAS1840	280	$ 840
JAS2307	850	5,950
TOTAL		$6,790

Information related to the year-end prices for the two years after the adoption of dollar-value LIFO is summarized in the following table.

December 31
Description	2018	2019
Year-end prices (FIFO) - MAS1840 inventory	S 2,100	S 2,639
Year-end prices (FIFO) - JAS2307 inventory	10,030	16,800

The cumulative price index for 2018 is 1.3385, and the cumulative price index for 2019 is 1.4399. Treat both models as one group.

Required

a. Calculate the ending inventory for 2018 at dollar-value LIFO and determine the LIFO reserve needed if any. Prepare the journal entry to record the LIFO reserve.
b. Calculate the ending inventory for 2019 at dollar-value LIFO and determine the LIFO reserve needed if any. Prepare the journal entry to record the LIFO reserve.

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Chapter 10, Problem 10.3P

Chapter 10, Problem 10.5P

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Chapter 10 Solutions

Intermediate Accounting (2nd Edition)

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Solution Summary: The author explains the last in first out (LIFO) method of inventory valuation that assumes that the goods purchased recently are the one which should be sold at first.

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