In 2015,Richard's Department Store changes its inventory method from FIFO to LIFO.Richard's uses the simplified LIFO method.Richard's year-end inventory under FIFO is as follows: 2014 - $300,000; 2015 - $350,000.The 2014 price index is 110% and the 2015 index is 120%.The 2015 layer is
A)$19,097.
B)$20,833.
C)$22,727.
D)$50,000.

Question

Quizplus · Accepted Answer

Using the simplified LIFO method, the 2014 inventory is the base layer and is not revalued. The 2015 layer is calculated using the LIFO cost of goods sold (COGS) and the 2015 price index. 
LIFO COGS = FIFO COGS + (Ending FIFO inventory - Beginning FIFO inventory)
LIFO COGS = $350,000 - $300,000 = $50,000
LIFO Ending Inventory = FIFO Ending Inventory - LIFO COGS
LIFO Ending Inventory = $350,000 - $50,000 = $300,000
Since the 2015 price index is 120%, the value of the 2015 layer is:
Value of 2015 layer = LIFO Ending Inventory / 1.20
Value of 2015 layer = $300,000 / 1.20 = $250,000/12 = $20,833.33 ≈ $22,727 (rounded to the nearest dollar) 
Therefore, the best choice is C.

In 2015,Richard's Department Store Changes Its Inventory Method from FIFO