On January 1, 2020, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanza 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, 1/1/20
Product A 10,000 $30 $300,000
Product B 9,000 25 225,000
$525,000
Inventory, 12/31/20
Product A 17,000 36 $612,000
Product B 9,000 26 234,000
$846,000
Inventory, 12/31/21
Product A 13,000 40 $520,000
Product B 10,000 32 320,000
$840,000
Required:
a. Compute the internal conversion price indexes for 2020 and 2021.
b. Compute the inventory amounts at December 31, 2020 and 2021, using the dollar-value LIFO inventory method.
Answers: 1
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