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Write your response and explain your reasoning.
A dollar-value LIFO pool has a base-year layer of 100,000 at an index of 1.00 and a prior-year layer of 10,000 at an index of 1.04. At the current year-end, the pool costs 107,100 at current prices and the supported current index is 1.05.
Compute the pool at base-year cost. Identify any new or liquidated layer, retain the correct index for each surviving layer, and compute ending dollar-value LIFO inventory. State one conclusion that this calculation cannot establish.
Compare your reasoning with the worked answer
Divide 107,100 by 1.05 to obtain 102,000 at base-year cost. Prior layers contain 100,000 from the base year and 10,000 from the prior year. The 8,000 decrease liquidates the newest layer first, leaving 2,000 of that layer. Ending dollar-value LIFO inventory is 100,000 plus 2,080, or 102,080. The calculation does not prove that the pool or index is appropriate.