(Dollar-Value LIFO) Presented below is information related to Dino Radja Company.
Ending Inventory Price
Date (End-of-Year Prices) Index
December 31, 2004 $ 80,000 100
December 31, 2005 115,500 105
December 31, 2006 108,000 120
December 31, 2007 122,200 130
December 31, 2008 154,000 140
December 31, 2009 176,900 145
Instructions
Compute the ending inventory for Dino Radja Company for 2004 through 2009 using the dollar-value
LIFO method.
To compute the ending inventory for Dino Radja Company for 2004 through 2009 using the dollar-value LIFO method, we need to follow these steps:
Step 1: Calculate the inventory value at the end of each year using the LIFO method.
To do this, we first need to determine the inventory layers. The inventory layers represent the different purchases made throughout the years and their associated costs.
- For 2004, the ending inventory is $80,000.
- For 2005, the inventory layer is the difference between the ending inventory for 2005 and the ending inventory for 2004: $115,500 - $80,000 = $35,500.
- For 2006, the inventory layer is the difference between the ending inventory for 2006 and the ending inventory for 2005: $108,000 - $115,500 = ($7,500).
- For 2007, the inventory layer is the difference between the ending inventory for 2007 and the ending inventory for 2006: $122,200 - $108,000 = $14,200.
- For 2008, the inventory layer is the difference between the ending inventory for 2008 and the ending inventory for 2007: $154,000 - $122,200 = $31,800.
- For 2009, the inventory layer is the difference between the ending inventory for 2009 and the ending inventory for 2008: $176,900 - $154,000 = $22,900.
Step 2: Calculate the price index for each year.
The price index is calculated by dividing the ending inventory price for each year by the index for that year.
- For 2004, the price index is 100 ($80,000 / 100 = $800).
- For 2005, the price index is 105 ($115,500 / 105 = $1,100).
- For 2006, the price index is 120 ($108,000 / 120 = $900).
- For 2007, the price index is 130 ($122,200 / 130 = $940).
- For 2008, the price index is 140 ($154,000 / 140 = $1,100).
- For 2009, the price index is 145 ($176,900 / 145 = $1,220).
Step 3: Calculate the inventory value for each year using the dollar-value LIFO method.
The dollar-value LIFO method involves multiplying the inventory layer by the price index for each year.
- For 2004, the inventory value is $80,000.
- For 2005, the inventory value is $35,500 * 105 = $3,727,500.
- For 2006, the inventory value is ($7,500) * 120 = ($900,000) (Negative because the inventory decreased).
- For 2007, the inventory value is $14,200 * 130 = $1,846,000.
- For 2008, the inventory value is $31,800 * 140 = $4,452,000.
- For 2009, the inventory value is $22,900 * 145 = $3,330,500.
Step 4: Calculate the ending inventory for each year.
The ending inventory for each year is the sum of the inventory value for that year plus the inventory value for the previous year.
- For 2004, the ending inventory is $80,000.
- For 2005, the ending inventory is $80,000 + $3,727,500 = $3,807,500.
- For 2006, the ending inventory is $3,807,500 - $900,000 = $2,907,500.
- For 2007, the ending inventory is $2,907,500 + $1,846,000 = $4,753,500.
- For 2008, the ending inventory is $4,753,500 + $4,452,000 = $9,205,500.
- For 2009, the ending inventory is $9,205,500 + $3,330,500 = $12,536,000.
Therefore, the ending inventory for Dino Radja Company for 2004 through 2009 using the dollar-value LIFO method is as follows:
- 2004: $80,000
- 2005: $3,807,500
- 2006: $2,907,500
- 2007: $4,753,500
- 2008: $9,205,500
- 2009: $12,536,000