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(33,500/26,250 = 127.62%)
Cumulative index:
Base-year cost of Dec. 31, yr. 2, inventory:
1st year percentage link 121.25%
2nd year percentage link 127.62%
Product: chain percentage, Dec. 31, yr. 2, relative
to Jan. 1, yr. 1, base date (121.25% x 127.62%) 154.74%
Base-year cost ($33,500/154.74%) $21,649
The LIFO value of the inventory in Pool No. 1 at December 31,
year 2, is $23,379, computed as follows:
Ratio (as a
percentage) of
Dec. 31, yr. 2, current-year Dec. 31, yr. 2,
inventory at cost to Inventory at
base-year cost base-year cost LIFO value
Jan. 1, yr. 1,
base cost $14,000 100.00% $14,000
Dec. 31, yr. 1,
increment 6,000 121.25% 7,275
Dec. 31, yr. 2,
increment 1,649 154.74% 2,552
Totals 21,649 23,827
The LIFO reserve for Pool No. 1 as of December 31, yr. 2, is
$9,673, computed as follows:
Dec. 31, yr. 2, inventory at current-year cost $33,500
Less: LIFO value of ending inventory 23,827
Equals: LIFO reserve 9,673
Example (3) continues the facts of Example (2). At base-year
costs, year 3 closing inventory is less than year 2 closing
inventory, indicating that a liquidation of inventory has occurred
during year 3. That liquidation is reflected by the elimination of
the year 2 layer of inventory and a reduction in the year 1 layer
of inventory.
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