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On January 1, 2020, Wildhorse Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax...

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
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(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 $ $

Solutions

Expert Solution

(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

ekkarill92 answered 2 years ago
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