Walt Co. adopted the U.S. GAAP dollar-value LIFO inventory method as of January 1, when its inventory was valued at $500,000. Walt's entire inventory constitutes a single pool. Using a relevant price index of 1.10, Walt determined that its December 31 inventory was $577,500 at current year cost, and $525,000 at base year cost. What was Walt's dollar-value LIFO inventory at December 31?
A.$577,500
B.$525,000
C.$527,500
D.$552,500
Answer:C
Choice "C" is correct. At base year costs, an additional layer of $25,000 ($525,000 base year cost at 12/31 less $500,000 base year cost at 1/1) was added. This layer was acquired for $27,500 [$25,000 x 1.10]. Dollar value LIFO inventory at year end equals $527,500 [$500,000 beginning inventory plus $27,500 additional layer].
Choice "B" is incorrect. An adjustment must be made for the price of the inventory layer acquired this year.
Choice "D" is incorrect. The relevant price index should be used to calculate the layer.
Choice "A" is incorrect. An adjustment should be made to the ending inventory.