Smith Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $690,000. Its inventory as of December 31, 2016, was $758,100 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2016

$723,600

Explanation:

First of all, we need to compute the value of ending inventory at base-year-prices. It is computed using the following formula:

Ending inventory at base-year-prices = $758000/1.05

= $722000      

Now we can compute the real-dollar quantity increase in inventory:

= ($722000 – $690000)

= $32,000

The next step is to value this real dollar quantity increase in inventory at year-end-prices:

= $32,000 × 1.05

= $33,600

DVL Inventory at Dec 31, 2016 = $690,000 + ($32000*105%) = $723,600

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