Question 1

A company adopted Dollar-Value LIFO on Jan 1, Year 1, when the inventory value was $200,000 (Base Year Cost). On Dec 31, Year 1, the ending inventory at current year cost is $231,000. The relevant price index is 1.05. What is the Dollar-Value LIFO inventory balance at Dec 31, Year 1?

Accepted Answer

1. Convert End Inv to Base Year prices (divide by index). 2. Compare to Beginning Base Year Inv. 3. Identify layers created. 4. Multiply each layer by its specific year's index. 5. Sum layers.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying the index to the total base year cost instead of just the layer.

A company adopted Dollar-Value LIFO on Jan 1, Year 1, when the inventory value was $200,000 (Base Year Cost). On Dec 31, Year 1, the ending inventory at current year cost is $231,000. The relevant price index is 1.05. What is the Dollar-Value LIFO inventory balance at Dec 31, Year 1?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam

More questions from this exam