Question

Problem 8-9 On January 1, 2017, Vaughn Wholesalers Inc, adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Vaughn continued to use the FIFO Inventory method for internal accounting and management purposes. In applying the LIFO method, Vaughn 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, 1/1/17 Product A Product B 12,400 11,400 $53 44 $657,200 501,600 $1,158,800 Inventory, 12/31/17 Product A Product B 19,400 11,400 64 46 $1,241,600 524,400 $1,766,000 Inventory, 12/31/18 Product A Product B 15,400 12,400 71 $1,093,400 57 706,800 $1,800,200

Answer 1

		Vaughan Wholesalers Inc.
	Current Year Inventory at current year cost
		Year 2017				Year 2018
		Units	per unit	Total cost		Units	per unit	Total cost
	Product A	19400	$    64.00	$      12,41,600.00	Product A	15400	$     71.00	$ 10,93,400.00
	Product B	11400	$    46.00	$        5,24,400.00	Product B	12400	$     57.00	$    7,06,800.00
				$      17,66,000.00				$ 18,00,200.00
	Current Year Inventory at base cost
		Year 2017				Year 2018
		Units	per unit	Total cost		Units	per unit	Total cost
	Product A	19400	$    53.00	$      10,28,200.00	Product A	15400	$     53.00	$    8,16,200.00
	Product B	11400	$    44.00	$        5,01,600.00	Product B	12400	$     44.00	$    5,45,600.00
				$      15,29,800.00				$ 13,61,800.00
	Formula
	Conversion Price Index=Current year Inventory at current year cost/Current year inventory at base year cost
		Year 2017
	Current year inventory at current year cost=(A)				1766000
	Current year inventory at base year cost=(B)				1529800
	Conversion price Index=(C)=(A)/(B)				1.15
		Year 2018
	Current year inventory at current year cost=(A)				1800200
	Current year inventory at base year cost=(B)				1361800
	Conversion price Index=(C)=(A)/(B)				1.32
	Inventory at LIFO Cost
		(A)	(B)	(A)*(B)
		Current Inventory at base cost	Conversion price Index	Inventory
	December 31st 2017
	Inventory at base year price	$      11,58,800.00	1	$      11,58,800.00
	2017 Layer(1529800-1158800)	$        3,71,000.00	1.15	$        4,26,650.00
	Total	$      15,29,800.00		$      15,85,450.00
		Current Inventory at base cost	Conversion price Index	Inventory
	December 31st 2018
	Inventory at base year price	$      11,58,800.00	1	$      11,58,800.00
	2017 remaining Layer	$        2,03,000.00	1.15	$        2,33,450.00
	Total	$      13,61,800.00		$      13,92,250.00