Question

On January 1, 2020, Blue Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Blue continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Blue 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 12,200 $30 $366,000 Product B 10,980 25 274,500 $640,500 Inventory, 12/31/20 Product A 20,130 36 $724,680 Product B 10,980 26 285,480 $1,010,160 Inventory, 12/31/21 Product A 15,860 40 $634,400 Product B 12,200 32 390,400 $1,024,800 (a) 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 eTextbook and Media Attempts: 0 of 3 used (b) The parts of this question must be completed in order. This part will be available when you complete the part above

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Answer 1

Solution:

a)

Blue wholesalers Inv computation of internal conversion price index for Inventory pool
Current inventory at current year cost		2020		2021
Product A	20,130*36	$724,680	15,860*40	$634,400
Product B	10,980*26	$285,480	12,200*32	$390,400
		$1,010,160		$1,024,800
Current inventory at base cost
Product A	20,13*30	$603,900	15,860*30	$475,800
Product B	10,980*25	$274,500	12,200*25	$305,000
		$878,400		$780,800

Conversion price index(2020 ) =$1,010,160/$878,400

=$1.15

Conversion price index(2021)

=$1,024,800/$780,800

=$1.31

	2020	2021
Conversion price index	1.15	1.31

b)

Blue wholesalers inc Computation of inventory amounts under dollar value LIFO method
	Current inventory at base cost	Conversion price index	Inventory at LIFO cost
31/Dec/2020 Base inventory	$366,000	1	$366,000
2020 layer($878,400 - $366,000)	$512,400	1.15(a)	$589,260
Total	$878,400(a)		$955,260
31/Dec/2021
Base inventory	$366,000	1	$366,000
2020 layer(remaining)	$414,800(b)	1.31(a)	$543,388
Total	$780,800(a)		$909,388

a) Per schedule for instruction (a)

b) After liquiadtion of $97,600 base cost($878,400 - $780,800)

	2020	2021
Inventory	$955,260	$909,388

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