Question

1) Swifty Company uses the LIFO method for financial reporting purposes but FIFO for internal reporting purposes. At January 1, 2020, the LIFO reserve has a credit balance of $1,415,000. At December 31, 2020, Swifty’s internal reports indicated that the FIFO inventory balance was $3,129,000 and for external reporting purposes the LIFO inventory balance was $1,616,500. What is the amount of the LIFO reserve and the LIFO effect related to 2020? LIFO reserve at December 31, 2020 $enter a dollar amount LIFO effect for 2020 What is the journal entry needed to record the LIFO effect at December 31, 2020?

2) Crane, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow. Year Ended December 31 Inventory at Current-Year Cost Price Index

2019 $19,600 100

2020 21,420 105

2021 25,200 112

Compute the value of the 2020 and 2021 inventories using the dollar-value LIFO method.

2020 2021 Inventory under LIFO

Answer 1

1 a Calculation of LIFO Reserve December 31, 2020 Answer $3,129,000 FIFO Inventory Balance at Dec 31,2020 $1,616,500 LIFO Inventory Balance at Dec 31,2020 $1,512,500 LIFO Reserve Balance Dec 31,2020 b Calculation of LIFO effect related to 2020 $1,512,500 LIFO Reserve Balance at Dec 31,2020 $1,415,000 LIFO Reserve at January 1,2020 $97,500 LIFO Effect Journal Entry General Journal Debit Credit Cost of Goods Sold $97,500 $97,500 Allowance to Reduce Inventory to LIFO (To record the LIFO effect)

2 2020 2021 Value of Inventory $20,440 $22,792 Computation of value of the 2020 and 2021 inventories using the dollar-value LIFO method. Explanations 2020 Inventory at base amount ($21,420/1.05) $20,400 $19,600 $800 2019 Inventory at base amount Increase in Base Inventory ($20,400 - $19,600) 2020 inventory under LIFO Layer One $19,600 x 1.00 $800 x 1.05 $19,600 $840 Layer Two $20,440 Total 2021 Inventory at base amount ($25,200 1.12) $22,500 $20,400 2020 Inventory at base amount Increase in Base Inventory ($22,500- $20,400) $2,100 2021 inventory under LIFO Layer One $19,600 x 1.00 $800 x 1.05 $19,600 $840 Layer Two Layer Three $2,100 x 1.12 $2,352 Total $22,792