Question E9-27

Question

Presented below is information related to Langston Hughes Corporation. Price LIFO Index Cost Retail Inventory on December 31, 2017, when dollar-value LIFO is adopted 100 $36,000 $ 74,500 Inventory, December 31, 2018 110 ? 100,100 Instructions Compute the ending inventory under the dollar-value LIFO method at December 31, 2018. The cost-to-retail ratio for 2018 was 60%.

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Answer

The ending inventory value under the dollar-value LIFO method equals.

1Definition of dollar-value LIFO retail method

Under this method, the change in the price level is eliminated in the inventory value to report the inventory per real increase, not per increase in the dollar.

2Calculation of ending inventory at LIFO cost

The ending inventory at LIFO cost is calculated as follows:

Calculation of Ending Inventory at LIFO Cost
Ending inventory at retail (deflated) ($100,100/1.10)	$91,000
Beginning inventory at retail	74,500
Real increase in inventory at retail	16,500
Ending inventory at retail on LIFO basis
First layer	36,000
Second layer ($16,500 x 1.10 x 60%)	10,890	$46,890

Thus, the ending inventory is $46,890.

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