Question

On January 1, 2020, Wildhorse Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Wildhorse continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Wildhorse uses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items are grouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A and B, for the 2 years following the adoption of LIFO. FIFO Basis per Records Units Unit Cost Total Cost Inventory, 1/1/20    Product A 11,400 $30 $342,000    Product B 10,260 25 256,500 $598,500 Inventory, 12/31/20    Product A 18,810 36 $677,160    Product B 10,260 26 266,760 $943,920 Inventory, 12/31/21    Product A 14,820 40 $592,800    Product B 11,400 32 364,800 $957,600

(a) Your answer is correct. Compute the internal conversion price indexes for 2020 and 2021. (Round price index to 2 decimal places, e.g. 1.62.) 2020 2021 Conversion price index Click if you would like to Show Work for this question: Open Show Work SHOW SOLUTION LINK TO TEXT Attempts: 3 of 15 used

(b) Your answer is incorrect. Try again. Compute the inventory amounts at December 31, 2020 and 2021, using the dollar-value LIFO inventory method. (Round answers to 0 decimal places, e.g. 5,620.) 2020 2021 Inventory $ $

Answer 1

(a)

			2020			2021
Particulars	Product A	Product B	POOL	Product A	Product B	POOL
Unit (A)	18810	10260		14820	11400
Unit Cost ($) (B)	30	25		36	26
Extended cost of Inventory @ Base years price i.e. 1st January(C= A*B)	564300	256500	820800	533520	296400	829920
Extended cost of Inventory @ recent years price i.e. 31st December	677160	266760	943920	592800	364800	957600
Price Index	120	104	115	111	123	115

Price index for 2020 = 115

Price Index for 2021 = 115

(b)

Date	Ending inventory @ current year cost	Conversion factor	Ending inventoy at base year cost	Increase	Inventoy layers	Conversion factor (base ---- added year)	Inventory layer at added year cost	Dollar value LIFO value
01-01-2020	598500	100	598500	-	598500	100	598500	598500
31-12-2020	943920	115	820800	123120	598500	100	598500
					123120	115	141588	740088
31-12-2021	957600	115	829920	127680	598500	100	598500
					123120	115	141588
					127680	115	146832	886920

Therefore Inventory value as per Dollar value LIFO method is :-

31.12.2020 - $ 740088

31.12.2021 - $ 886920