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Expert-verified Found in: Page 434 ### Intermediate Accounting (Kieso)

Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201

# On January 1, 2017, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continuedto use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanzauses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items aregrouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A andB, for the 2 years following the adoption of LIFO.FIFO Basis per RecordsUnit TotalUnits Cost CostInventory, 1/1/17Product A 10,000 $30$300,000Product B 9,000 25 225,000$525,000Inventory, 12/31/17Product A 17,000 36$612,000Product B 9,000 26 234,000$846,000Inventory, 12/31/18Product A 13,000 40$520,000Product B 10,000 32 320,000$840,000Instructions(a) Prepare a schedule to compute the internal conversion price indexes for 2017 and 2018. Round indexes to two decimal places.(b) Prepare a schedule to compute the inventory amounts at December 31, 2017 and 2018, using the dollar-value LIFO inventory method. The price index for A and B 2017 120 104 2018 133 128 The ending inventory at dollar value LIFO for A and B is$409,172.4 and $257,000, respectively. See the step by step solution ### Step by Step Solution ## Schedule of price index  Current cost of inventory / Base cost of inventory = Price Index For Product A, Beg$30 / $30 = 1 or 100% 2017$36 / $30 = 1.2 or 120% 2018$40 / $30 = 1.33 or 133% For Product B, Beg$25 / $25 = 1 or 100% 2017$26 / $25 = 1.04 or 104% 2018$32 / $25 = 1.28 or 128% ## Ending inventory for the period at base year cost    ## Inventory value at dollar value LIFO For Product A  Ending inventory at base year prices Layer at base year prices X Price index (percent) = Dollar value LIFO 2016$300,000 $300,000 X 100 =$300,000 2017 $510,000$90,977 X 120 = $109,172.4 2018$390,977 Total $409,172.4 For Product B  Ending inventory at base year prices Layer at base year prices X Price index (percent) = Dollar value LIFO 2016$225,000 $225,000 X 100 =$225,000 2017 $225,000 0 X 104 = 0 2018$250,000 $25,000 X 128 =$32,000 Total \$257,000 