Concept explainers
1.
Determine the cost index for each year for each pool using a base of 100 for each index.
1.
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. It is calculate using the formula given below:
Determine the cost index for each year for each pool:
For 2016 | |
Pool 1 | Pool 2 |
For 2017 | |
Pool 1 | Pool 2 |
For 2018 | |
Pool 1 | Pool 2 |
Table (1)
Thus, the cost index of Pool 1 for the years 2016, 2017 and 2018 are 114.4444, 115.8824, and 121.8310 respectively and the cost index of Pool 2 for the years 2016, 2017 and 2018 are 128.6385, 111.7949, and 124 respectively.
2.
Using the dollar value LIFO method compute the ending inventory for all the years.
2.
Explanation of Solution
Dollar-value LIFO method: In this method, the
Compute the total ending inventory costs for all the years:
Year | Pool 1 | Pool 2 | Total cost |
2015 | $400,000 | $360,000 | $760,000 |
2016 | $560,222 | $444,901 | $1,005,123 |
2017 | $722,457 | $398,591 | $1,121,048 |
2018 | $759,006 | $534,991 | $1,293,997 |
Table (2)
Working note 1: Compute the ending inventory for all the years:
Date | Ending inventory at Current costs | Inventory at Base year costs | |
Pool 1 | |||
01/01/2016 | - | $ 400,000 | |
12/31/2016 | $618,000 | $ 540,000 | |
12/31/2017 | $788,000 | $ 680,000 | |
12/31/2018 | $865,000 | $ 710,000 | |
Pool 2 | |||
01/01/2016 | - | $ 360,000 | |
12/31/2016 | $548,000 | $ 426,000 | |
12/31/2017 | $436,000 | $ 390,000 | |
12/31/2018 | $620,000 | $500,000 |
Table (3)
Date | Increase/ decrease at base year cost | Increase/ decrease at relevant current cost | Ending inventory at LIFO | |
Pool 1 | - | - | ||
01/01/2016 | $ 400,000 | |||
12/31/2016 | $140,000 | $160,222 | $ 560,222 | |
12/31/2017 | $140,000 | $162,235 | $ 722,457 | |
12/31/2018 | $30,000 | $36,549 | $ 759,056 | |
Pool 2 | ||||
01/01/2016 | $360,000 | |||
12/31/2016 | $66,000 | $84,901 | $444,901 | |
12/31/2017 | ($36,000) | ($46,310) | $398,591 | |
12/31/2018 | $110,000 | $136,400 | $534,991 |
Table (4)
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Chapter 7 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
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