On January 1, 2020, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanza 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 10,000 $30 $300,000 Product B 9,000 25 225,000 $525,000 Inventory, 12/31/20 Product A 17,000 36 $612,000 Product B 9,000 26 234,000 $846,000 Inventory, 12/31/21 Product A 13,000 40 $520,000 Product B 10,000 32 320,000 $840,000 Instructions a. Prepare a schedule to compute the internal conversion price indexes for 2020 and 2021. Round indexes to two decimal places. b. Prepare a schedule to compute the inventory amounts at December 31, 2020 and 2021, using the dollar-value LIFO inventory method.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter7: Inventories: Cost Measurement And Flow Assumptions

Section: Chapter Questions

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

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On January 1, 2020, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanza 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	10,000	$30	$300,000
Product B	9,000	25	225,000
			$525,000
Inventory, 12/31/20
Product A	17,000	36	$612,000
Product B	9,000	26	234,000
			$846,000
Inventory, 12/31/21
Product A	13,000	40	$520,000
Product B	10,000	32	320,000
			$840,000

Instructions

a. Prepare a schedule to compute the internal conversion price indexes for 2020 and 2021. Round indexes to two decimal places.

b. Prepare a schedule to compute the inventory amounts at December 31, 2020 and 2021, using the dollar-value LIFO inventory method.

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