Question

Problem 8-09 On January 1, 2020, Crane Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Crane continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Crane 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 8,000 $30 $240,000    Product B 7,200 25 180,000 $420,000 Inventory, 12/31/20    Product A 13,200 36 $475,200    Product B 7,200 26 187,200 $662,400 Inventory, 12/31/21    Product A 10,400 40 $416,000    Product B 8,000 32 256,000 $672,000

Compute the internal conversion price indexes for 2020 and 2021. (Round price index to 2 decimal places, e.g. 162.) 2020 2021 Conversion price index

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

1. According to the question, we need to compute the internal conversion price indexes for 2020 and 2021.

(a) For that, at first we need to calculate Current year inventory at both current year and base year cost:

Crane Wholesalers Inc. Current year inventory at Current year cost
Year 2020	Year 2021
Products	Units	per unit price	Total cost	Products	Units	per unit price	Total cost
Product A	13,200	$36	$475,200	Product A	10,400	$40	$416,000
Product B	7,200	$26	$187,200	Product B	8,000	$32	$256,000
Total	$662,400	Total	$672,000

Crane Wholesalers Inc. Current year inventory at Base year cost
Year 2020	Year 2021
Products	Units	per unit price	Total cost	Products	Units	per unit price	Total cost
Product A	13,200	$30	$396,000	Product A	10,400	$30	$312,000
Product B	7,200	$25	$180,000	Product B	8,000	$25	$200,000
Total	$576,000	Total	$512,000

(b) Now, we can calculate Conversion Price Index by using formula= Current year inventory at Current year cost/Current year inventory at Base year cost

We have calculated both the value in (a) part.

(i) Conversion price Index of year 2020= $662,400/$576,000= 1.15

(ii) Conversion price Index of year 2021= $672,000/ $512,000= 1.31

2. Next, we need to compute the inventory amounts using LIFO Method:

Date	Particulars	Current year inventory at Base year cost	CPI	Inventory
12/31/20	Inventory at base price	$420,000	1	$420,000
	Difference ($576,000- $420,000)	$156,000	1.15	$179,400
12/31/21	Inventory at base price	$420,000	1	$420,000
	Remaining ($512,000-$420,000)	$92,000	1.15	$105,800

Hence, Inventory at December 31, 2020 is $599,400 and at December 31, 2021 is $525,800.