Aber Company manufactures one product. On December 31, 2016, Aber adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was $900,000. Inventory data are as follows:

Year Inventory at year-end prices Price index (base year 2016)
2017 $1,260,000 1.05
2018 1,840,000 1.15
2019 1,900,000 1.25

Required:
Compute the inventory at December 31, 2017, 2018, and 2019, using the dollar-value LIFO method for each year.

Inventory  2017 dollar-value LIFO $ 1215,000

Inventory  2017 dollar-value LIFO $ 1675,000

Inventory  2017 dollar-value LIFO $  1583,000

Explanation:

Aber Company

Year         Inventory at            Price index     Ending Inventory

              year-end prices    (base year 2016) At base year

2017          $1,260,000          1.05                     $1200,000

2018           1,840,000            1.15                     $ 1600,000

2019           1,900,000            1.25                  $1520,000

Calculations

2017 Ending Inventory at base year price =  $1,260,000 / 1.05 =$1200,000

2018 Ending Inventory at base year price =   1,840,000/ 1.15  =$ 1600,000

2019 Ending Inventory at base year price =  1,900,000 /1.25= $ 1520,000

We multiply each layer added with the price indices given to get the LIFO value dollar of inventory

Ending Inventory      Layers     Inventory

At base year           Added        LIFO dollar-value

$1200,000            300,000            900,000 at base year price

                                                          315,000

                                                           1215,000

 $ 1600,000         700,000                 900,000 at base price

                          300,000 at 1.05         315,000

                          400,000 at 1.15           460,000

                                                             1675,000

  $1520,000         620,000                   900,000 at base price

                           300,000 at 1.05          315,000

                          3200,000 at 1.15           368,000

                                                              1583,000

Computation of Inventory at 2017

Layer=  $1200,000- $900,000= 300,000

Inventory at base = $900,000

$300,000 at 1.05= $315,000

Inventory at 2017 = 1215,000

Computation of Inventory at 2018

Layer=  $1600,000- $900,000= 700,000

Inventory at base = $900,000

$300,000 at 1.05= $315,000

$400,000 at 1.15= $ 460,000

Inventory at 2018 = 1675,000

Computation of Inventory at 2017

Layer=  $1520,000- $900,000= 620,000

Inventory at base = $900,000

$300,000 at 1.05= $315,000

$ 320,000 at 1.15= $ 368,000

Inventory at 2017 = 1583,000

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