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Please explain where they got the 20% increase during the year from. FACTS Enrico Company first adopts dollar-value LIFO on December 31, 2024 (base period).
Please explain where they got the 20% increase during the year from.
FACTS Enrico Company first adopts dollar-value LIFO on December 31, 2024 (base period). The inventory at current prices on that date was $20,000. The inventory on December 31,2025 , at current prices is $26,400. QUESTION Can we conclude that Enrico's inventory quantities increased 32% during the year ($26,400$20,000=132%) ? To answer this question, we need to do the following. 1. Determine the value of the ending inventory in terms of beginning-of-the-year prices. Assuming that prices have increased 20% during the year, the ending inventory at beginning-of-theyear prices amounts to $22,000($26,4001.20 ). Therefore, the inventory quantity has increased only 10%, or from $20,000 to $22,000 in terms of beginning-of-the-year prices. 2. Price this real-dollar quantity increase. This real-dollar quantity increase of $2,000 valued at year-end prices is $2,400(1.20$2,000). This increment (layer) of $2,400, when added to the beginning inventory of $20,000, totals $22,400 for the December 31,2025 , inventory, as follows. Note that a layer forms only when the ending inventory at base-year prices exceeds the beginning inventory at base-year prices. Only when a new layer forms must Enrico compute a new indexStep by Step Solution
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