Concept explainers
1.
Determine the cost index for each year for each pool using a base of 100 for each index.
1.
Explanation of Solution
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. It is calculate using the formula given below:
Determine the cost index for each year for each pool:
For 2016 | |
Pool 1 | Pool 2 |
For 2017 | |
Pool 1 | Pool 2 |
For 2018 | |
Pool 1 | Pool 2 |
Table (1)
Thus, the cost index of Pool 1 for the years 2016, 2017 and 2018 are 114.4444, 115.8824, and 121.8310 respectively and the cost index of Pool 2 for the years 2016, 2017 and 2018 are 128.6385, 111.7949, and 124 respectively.
2.
Using the dollar value LIFO method compute the ending inventory for all the years.
2.
Explanation of Solution
Dollar-value LIFO method: In this method, the
Compute the total ending inventory costs for all the years:
Year | Pool 1 | Pool 2 | Total cost |
2015 | $400,000 | $360,000 | $760,000 |
2016 | $560,222 | $444,901 | $1,005,123 |
2017 | $722,457 | $398,591 | $1,121,048 |
2018 | $759,006 | $534,991 | $1,293,997 |
Table (2)
Working note 1: Compute the ending inventory for all the years:
Date | Ending inventory at Current costs | Inventory at Base year costs | |
Pool 1 | |||
01/01/2016 | - | $ 400,000 | |
12/31/2016 | $618,000 | $ 540,000 | |
12/31/2017 | $788,000 | $ 680,000 | |
12/31/2018 | $865,000 | $ 710,000 | |
Pool 2 | |||
01/01/2016 | - | $ 360,000 | |
12/31/2016 | $548,000 | $ 426,000 | |
12/31/2017 | $436,000 | $ 390,000 | |
12/31/2018 | $620,000 | $500,000 |
Table (3)
Date | Increase/ decrease at base year cost | Increase/ decrease at relevant current cost | Ending inventory at LIFO | |
Pool 1 | - | - | ||
01/01/2016 | $ 400,000 | |||
12/31/2016 | $140,000 | $160,222 | $ 560,222 | |
12/31/2017 | $140,000 | $162,235 | $ 722,457 | |
12/31/2018 | $30,000 | $36,549 | $ 759,056 | |
Pool 2 | ||||
01/01/2016 | $360,000 | |||
12/31/2016 | $66,000 | $84,901 | $444,901 | |
12/31/2017 | ($36,000) | ($46,310) | $398,591 | |
12/31/2018 | $110,000 | $136,400 | $534,991 |
Table (4)
Want to see more full solutions like this?
Chapter 7 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
- Dollar-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_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_forwardLIFO 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.arrow_forward
- Dollar-Value LIFO A company adopted the LIFO method when its inventory was 1,800. One year later its ending inventory was 2,100, and costs had increased 5% during the year. Required: What is the ending inventory using dollar-value LIFO? Round to the nearest dollar.arrow_forwardHabicht Company was formed in 2018 to produce a single product. The production and sales for the next 4 years were as follows: Required: 1. Determine the gross profit for each year under each of the following periodic inventory methods: a. FIFO b. LIFO c. Average cost (Round unit costs to 3 decimal places.) 2. Next Level Explain whether the companys return on assets (net income divided by average total assets) would be higher under FIFO or LIFO.arrow_forwardWebster Company adopted do liar-value LIFO on January 1, 2019. Webster produces three products: X, Y, and Z. Websters beginning inventory consisted of the following: During 2019, Webster had the following purchases and sales: Required: 1. Compute the LIFO cost of the ending inventory assuming Webster uses a single inventory pool. Round cost index to 4 decimal places. 2. Compute the LIFO cost of the ending inventory assuming Webster uses three inventory pools. Round cost indexes to 4 decimal places.arrow_forward
- On January 1 of Year 1, Dorso Company adopted the dollar-value LIFO method of inventory costing. Dorsos December 31 ending inventory records are as follows: Year 1: Current cost, 20,000; Index, 100 Year 2: Current cost, 33,600; Index, 120 Using the dollar-value LIFO method, compute Dorsos December 31 ending inventory for Year 2.arrow_forwardAlternative Inventory Methods Park Companys perpetual inventory records indicate the following transactions in the month of June: Required: 1. Compute the cost of goods sold for June and the inventory at the end of June using each of the following cost flow assumptions: a. FIFO b. LIFO c. Average cost (Round unit costs to 3 decimal places and other amounts to the nearest dollar.) 2. Next Level Why are the cost of goods sold and ending inventory amounts different for each of the three methods? What do these amounts tell us about the purchase price of inventory during the year? 3. Next Level Which method produces the most realistic amount for net income? For inventory? Explain your answer. 4. Next Level If Park uses IFRS, which of the previous alternatives would be acceptable and why?arrow_forwardLower of Cost or Market Garcia Company uses FIFO, and its inventory at the end of the year was recorded in the accounting records at $17,800. Due to technological changes in the market, Garcia would be able to replace its inventory for $16,500. Required: 1. Using the lower of cost or market method, what amount should Garcia report for inventory on its balance sheet at the end of the year? 2. Prepare the journal entry required to value the inventory at the lower of cost or market.arrow_forward
- Inventory Write-Down Stiles Corporation uses the FIFO cost flow assumption and is in the process of applying the LCNRV rule for each of two products in its ending inventory. A profit margin of 30% on the selling price is considered normal for each product. Specific data for each product are as follows: Inventory Write-Down Use the information in E8-1. Assume that Stiles uses the LIFO cost flow assumption and is applying the LCM rule. Required: 1. What is the correct inventory value for each product? 2. Next Level With regard to requirement 1, what effect does the imposition of the constraints on market value have on the inventory valuations?arrow_forwardAnalyzing Inventory The recent financial statements of McLelland Clothing Inc. include the following data: Required: 1. Calculate McLellands gross profit ratio (rounded to two decimal places), inventory turnover ratio (rounded to three decimal places), and the average days to sell inventory (assume a 365-day year and round to two decimal places) using the FIFO inventory costing method. Be sure to explain what each ratio means. 2. Calculate McLellands gross profit ratio (rounded to two decimal places), inventory turnover ratio (rounded to three decimal places), and the average days to sell inventory (assume a 365-day year and round to two decimal places) using the LIFO inventory costing method. Be sure to explain what each ratio means. 3. CONCEPTUAL CONNECTION Which ratios-the ones computed using FIFO or LIFO inventory values-provide the better indicator of how successful McLelland was at managing and controlling its inventory?arrow_forwardOlson 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_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningIndividual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning