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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Webster Company adopted do liar-value LIFO on January 1, 2019. Webster produces three products: X, Y, and Z. Webster’s beginning inventory consisted of the following:

Chapter 7, Problem 13P, Webster Company adopted do liar-value LIFO on January 1, 2019. Webster produces three products: X, , example  1

During 2019, Webster had the following purchases and sales:

Chapter 7, Problem 13P, Webster Company adopted do liar-value LIFO on January 1, 2019. Webster produces three products: X, , example  2

Required:

  1. 1. Compute the LIFO cost of the ending inventory assuming Webster uses a single inventory pool. Round cost index to 4 decimal places.
  2. 2. Compute the LIFO cost of the ending inventory assuming Webster uses three inventory pools. Round cost indexes to 4 decimal places.

1.

To determine

Calculate the ending inventory for LIFO cost if single inventory pool is used.

Explanation

Cost index:

Cost index refer to the index which relates the inventory cost of current year with the base year. The cost index is usually prepared with a sample from the total inventory.

Double-extension method:

Under the double-extension method of cost index, the ending inventory of the current year are valued at the current year costs and related with the base year’s cost.

Calculate the ending inventory in units:

ParticularsProduct XProduct YProduct Z
Beginning inventory30,000 10,000 25,000
Add: Net Purchases110,000 100,000 75,000
Units available for sale140,000 110,000 100,000
Less: Sales(90,000)(85,000)(70,000)
Ending inventory50,00025,00030,000

Table (1)

Calculate the cost index:

Cost Index = Ending inventory at Current year costEnding inventory at Base year cost×100=(50,000×$4.75)+(25,000×$3.75)+(30,000×$2.10)(50,000×$4.25)+(25,000×$3.50)+(30,000×$2.00)×100=$394,250$360,000×100=109

2.

To determine

Calculate the ending inventory for LIFO cost if three inventory pools are used.

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