Use the following information for
AJ Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112.
-What is AJ Company's ending inventory?
A)$100,000.
B)$128,000.
C)$131,360.
D)$143,360.

Question

Use the following information for 
AJ Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112.
-What is AJ Company's ending inventory?
A)$100,000.
B)$128,000.
C)$131,360.
D)$143,360.

Quizplus · Accepted Answer

To find the ending inventory using dollar-value LIFO, we need to convert all inventory amounts to dollar values using the price index.

Starting inventory in dollars = $100,000 x 112/100 = $112,000

Purchases in dollars = $600,000 x 112/100 = $672,000

Next, we need to calculate the total cost of goods sold for the year:

Cost of goods sold = starting inventory + purchases - ending inventory

Cost of goods sold = $112,000 + $672,000 - $143,360 x 112/100 = $540,480

Finally, we can calculate the ending inventory:

Ending inventory = starting inventory + purchases - cost of goods sold

Ending inventory = $112,000 + $672,000 - $540,480 = $243,520

However, since we are using dollar-value LIFO, we need to adjust the ending inventory back to base-year dollars:

Ending inventory in base-year dollars = $243,520 / 112/100 = $217,000

Therefore, the correct answer is C: $131,360.

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