Question

On January 1, 2017, Flounder Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Flounder continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Flounder 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.

	units	unit cost	total cost
inventory, 1/1/17
product A	12,400	$53	$657,200
product B	11,400	44	501,000
			$1,158,000
inventory, 12/31/17
product A	19,400	64	$1,241,600
product B	11,400	46	524,000
			$1,766,000
inventory, 12/31/18
Product A	15,400	71	$1,093,400
product B	12,400	57	706,800
			$1,800,200

a.) compute the internal conversion price indexes for 2017 and 2018.

b.) compute the inventory amounts at December 31, 2017 and December 31, 2018, using the dollar value LIFO inventory method.

Answer 1

a.) compute the internal conversion price indexes for 2017 and 2018.
Current inventory at			2017				2018
Current year cost
Product A		19400*64	$    1,241,600.00			15400*71	$    1,093,400.00
Product B		11400*46	$       524,400.00			12400*57	$       706,800.00
			$ 1,766,000.00				$ 1,800,200.00
Current inventory at
Base cost
Product A		19400*53	$    1,028,200.00			15400*53	$       816,200.00
Product B		11400*44	$       501,600.00			12400*44	$       545,600.00
			$ 1,529,800.00				$ 1,361,800.00
Conversion price index		1766000/1529800	1.15			1800200/1361800	1.32
b.) compute the inventory amounts at December 31, 2017 and December 31, 2018, using the dollar value LIFO inventory method.
		Current year inventory at base cost		Conversion price index		Inventory at LIFO cost
31-12-17
Base inventory'		$                             1,158,000.00		1		$         1,158,000.00
2017 layer [1529800-1158000]		$                                371,800.00		1.15		$            427,570.00
Total		$                           1,529,800.00				$       1,585,570.00
31-12-18
Base inventory'		$                             1,158,000.00		1		$         1,158,000.00
Remaining[1361800-1158000]		$                                203,800.00		1.32		$            269,016.00
Total		$                           1,361,800.00				$       1,427,016.00