Victor Manufacturing Co. switched from FIFO to LIFO on January 1, 2004 for exter

Question

Victor Manufacturing Co. switched from FIFO to LIFO on January 1, 2004 for external reporting and income tax purposes, while retaining FIFO for internal reports. On that date, the FIFO inventory equaled $360,000. The ensuing three-year period resulted in the following:

Date Inventory Year-End Costs Cost Index

December 31, 2004 $438,000 1.05

December 31, 2005 460,000 1.25

December 31, 2006 520,000 1.35

The ending inventory at December 31, 2006, using the Dollar-value LIFO method would be a. $391,600 b. $402,000 c. $426,000 d. $386,444

Explanation / Answer

Solution :-

The answer is "A".

Year Closing Bal. as per LIFO 2004 (438000/1.05) = $417142.86 (417142.86-360000) =$57142.86 360000+(57142.86*1.05) = $420000 2005 (460000/1.25) = $368000 (368000-417142.86)= -$49142.86 420000+(-49142.86*1.05) = $368400 2006 (520000/1.35) = $385185.19 (385185.19-368000)= $17185.19 368400+(17185.19*1.35) = $391600

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