Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 7, Problem 13P

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.

Expert Solution
Check Mark
To determine

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

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.

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=109.5139

Calculate the ending inventory at the Base year cost:

Ending inventory atBase year cost} = 100Cost Index×Ending inventory at Current year cost=100109.5139×$394,250=$360,000 rounded

Calculate the increase in inventory at the Base year cost:

Increase in inventoryat Base year cost} = $360,000$212,500=$147,500

Calculate the layer increase in inventory at the Current year cost:

Layer increase atcurrent year cost} = $147,500×109.5139100=$161,533 rounded

Calculate the LIFO ending inventory cost:

LIFO Endinginventory cost} = $212,500+$161,533=$374,033

Thus, the ending inventory for LIFO cost if single inventory pool is used is $374,033.

2.

Expert Solution
Check Mark
To determine

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

Explanation of Solution

Calculate the cost index for Product X:

Cost Index = Ending inventory at Current year costEnding inventory at Base year cost×100=(50,000×$4.75)(50,000×$4.25)×100=$237,500$212,500×100=111.7647

Calculate the ending inventory at the Base year cost for Product X:

Ending inventory atBase year cost} = 100Cost Index×Ending inventory at Current year cost=100111.7647×$237,500=$212,500 rounded

Calculate the increase in inventory at the Base year cost for Product X:

Increase in inventoryat Base year cost} = $212,500$127,500=$85,000

Calculate the layer increase in inventory at the Current year cost for Product X:

Layer increase atcurrent year cost} = $85,000×111.7647100=$95,000 rounded

Calculate the LIFO ending inventory cost for Product X:

LIFO Endinginventory cost} = $127,500+$95,000=$222,500

Thus, the ending inventory for LIFO cost for Product X if three inventory pools are used is $222,500.

Calculate the cost index for Product Y:

Cost Index = Ending inventory at Current year costEnding inventory at Base year cost×100=(25,000×$3.75)(25,000×$3.50)×100=$93,750$87,500×100=107.1429

Calculate the ending inventory at the Base year cost for Product Y:

Ending inventory atBase year cost} = 100Cost Index×Ending inventory at Current year cost=100107.1429×$93,750=$87,500 rounded

Calculate the increase in inventory at the Base year cost for Product Y:

Increase in inventoryat Base year cost} = $87,500$35,000=$52,500

Calculate the layer increase in inventory at the Current year cost for Product Y:

Layer increase atcurrent year cost} = $52,500×107.1429100=$56,252 rounded

Calculate the LIFO ending inventory cost for Product Y:

LIFO Endinginventory cost} = $35,000+$56,252=$91,252

Thus, the ending inventory for LIFO cost for Product Y if three inventory pools are used is $91,252.

Calculate the cost index for Product Z:

Cost Index = Ending inventory at Current year costEnding inventory at Base year cost×100=(30,000×$2.10)(30,000×$2.00)×100=$63,000$60,000×100=105

Calculate the ending inventory at the Base year cost for Product Z:

Ending inventory atBase year cost} = 100Cost Index×Ending inventory at Current year cost=100105×$63,000=$60,000 rounded

Calculate the increase in inventory at the Base year cost for Product Z:

Increase in inventoryat Base year cost} = $60,000$50,000=$10,000

Calculate the layer increase in inventory at the Current year cost for Product Z:

Layer increase atcurrent year cost} = $10,000×105100=$10,500

Calculate the LIFO ending inventory cost for Product Z:

LIFO Endinginventory cost} = $50,000+$10,500=$60,500

Thus, the ending inventory for LIFO cost for Product Z if three inventory pools are used is $60,500.

Calculate the LIFO ending inventory cost:

Ending Inventory = Product X + Product Y+ Product Z$222,500+$91,252+$60,500=$374,252

Thus, the ending inventory for LIFO cost if three inventory pools are used is $374,252.

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Chapter 7 Solutions

Intermediate Accounting: Reporting And Analysis

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