Concept explainers
LIFO and Inventory Pools On January 1, 2016, Grover Company changed its inventory cost flow method to the LIFO cost method from the FIFO cost method for its raw materials inventory. It made the change for both financial statement and income tax reporting purposes. Grover uses the multiple-pools approach under which it groups substantially identical raw materials into LIFO inventory pools. It uses weighted average costs in valuing annual incremental layers. The composition of the December 31, 2018, inventory for the Class F inventory pool is as follows:
Inventory transactions for the Class F inventory pool during 2019 were as follows:
- On March 2, 2019, 4,800 units were purchased at a unit cost of $13.50 for $64,800.
- On September 1, 2019, 7,200 units were purchased at a unit cost of $14.00 for $100,800.
- A total of 15,000 units were used for production during 2019.
The following transactions for the Class F inventory pool took place during 2020:
- On January 11, 2020, 7,500 units were purchased at a unit cost of $14.50 for $108,750.
- On May 14, 2020, 5,500 units were purchased at a unit cost of $15.50 for $85,250.
- On December 29, 2020, 7,000 units were purchased at a unit cost of $16.00 for $112,000.
- A total of 16,000 units were used for production during 2020.
Required:
- 1. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2019. Show supporting computations in good form.
- 2. Prepare a schedule to compute the cost of Class F raw materials used in production for the year ended December 31, 2019.
- 3. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2020. Show supporting computations in good form.
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Intermediate Accounting: Reporting And Analysis
- Olson Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015. The following information about the inventory at the end of each year is available from Olsons records: Required: 1. Calculate the dollar-value LIFO inventory at the end of each year. 2. Prepare the appropriate disclosures for the 2021 annual report if Olson uses current cost internally and LIFO for financial reporting.arrow_forwardFava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of 300,000 and 270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of 125,000 and 120,000 in 2019 and 2018, which included cost of goods sold of 55,000 and 45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by 8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary. 3. At the end of 2019, prepare the comparative retained earnings statements for 2019 and 2018.arrow_forwardDollar-Value LIFO Kwestel Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015. The following information about the inventory at the end of each year is available from Kwestels records: Required: Calculate the dollar-value LIFO inventory at the end of each year. Round to the nearest dollar.arrow_forward
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- A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of 2014. The manufacturer has been in operation for almost 40 years, and for the last decade it has reported moderate growth in revenues. The firm changed from the LIFO method to the FIFO method and reported the following information (amounts in millions): REQUIRED Calculate the inventory turnover ratio for 2014 using the LIFO and FIFO cost-flow assumption methods. Explain why the costs assigned to inventory under LIFO at the end of 2013 and 2014 are so much less than they are under FIFO.arrow_forwardInventory Pools Stone Shoe Company adopted dollar-value LIFO on January 1, 2019. The company produces four products and uses a single inventory pool. The companys beginning inventory consists of the following: During 2019, the company has the following purchases and sales: Required: 1. Compute the dollar-value LIFO cost of the ending inventory. Round the cost index to 4 decimal places and all other amounts to the nearest dollar. 2. Next Level By how much would the companys gross profit differ if it had used four pools instead of a single pool?arrow_forwardKraft Manufacturing Company manufactures two products: Mult and Tran. At December 31, 2019, Kraft used the FIFO inventory method. Effective January 1, 2020, Kraft changed to the LIFO inventory method. The cumulative effect of this change is not determinable, and, as a result, the ending inventory of 2019, for which the FIFO method was used, is also the beginning inventory for 2020 for the LIFO method. Any layers added during 2020 should be costed by reference to the first acquisitions of 2020, and any layers liquidated during 2020 should be considered a permanent liquidation. The following information was available from Krafts inventory records for the two most recent years: Required: Compute the effect on income before income taxes for the year ended December 31, 2020, resulting from the change from the FIFO to the LIFO inventory method.arrow_forward
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