Concept explainers
LIFO and Inventory Pools On January 1, 2016, Grover Company changed its inventory cost flow method to the LIFO cost method from the FIFO cost method for its raw materials inventory. It made the change for both financial statement and income tax reporting purposes. Grover uses the multiple-pools approach under which it groups substantially identical raw materials into LIFO inventory pools. It uses weighted average costs in valuing annual incremental layers. The composition of the December 31, 2018, inventory for the Class F inventory pool is as follows:
Inventory transactions for the Class F inventory pool during 2019 were as follows:
- On March 2, 2019, 4,800 units were purchased at a unit cost of $13.50 for $64,800.
- On September 1, 2019, 7,200 units were purchased at a unit cost of $14.00 for $100,800.
- A total of 15,000 units were used for production during 2019.
The following transactions for the Class F inventory pool took place during 2020:
- On January 11, 2020, 7,500 units were purchased at a unit cost of $14.50 for $108,750.
- On May 14, 2020, 5,500 units were purchased at a unit cost of $15.50 for $85,250.
- On December 29, 2020, 7,000 units were purchased at a unit cost of $16.00 for $112,000.
- A total of 16,000 units were used for production during 2020.
Required:
- 1. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2019. Show supporting computations in good form.
- 2. Prepare a schedule to compute the cost of Class F raw materials used in production for the year ended December 31, 2019.
- 3. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2020. Show supporting computations in good form.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Intermediate Accounting: Reporting And Analysis
- Olson Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015. The following information about the inventory at the end of each year is available from Olsons records: Required: 1. Calculate the dollar-value LIFO inventory at the end of each year. 2. Prepare the appropriate disclosures for the 2021 annual report if Olson uses current cost internally and LIFO for financial reporting.arrow_forwardRefer to the information provided in RE8-4. If Paul Corporations inventory at January 1, 2019, had a cost and net realizable value of 300,000, prepare the journal entry to record the reductions to NRV for Paul Corporation assuming that Paul uses a periodic inventory system and the direct method. Paul Corporation uses FIFO and reports the following inventory information: Assuming Paul uses a perpetual inventory system and the direct method, prepare the journal entry to record the write-down of inventory.arrow_forwardFava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of 300,000 and 270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of 125,000 and 120,000 in 2019 and 2018, which included cost of goods sold of 55,000 and 45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by 8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary. 3. At the end of 2019, prepare the comparative retained earnings statements for 2019 and 2018.arrow_forward
- Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2020, Schmidt decided to switch to the average cost inventory method for financial and income tax reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Schmidt had cash of 15,600, inventory of 34,000, other assets of 76,000, income taxes payable of 4,200, and accounts payable of 3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.arrow_forwardKoopman Company began operations on January 1, 2018, and uses they FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2020, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Koopman had cash of 10,000, inventory of 24,000, other assets of 70,800, accounts payable of 4,500, and income taxes payable of 6,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in methods at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.arrow_forwardWebster Company adopted do liar-value LIFO on January 1, 2019. Webster produces three products: X, Y, and Z. Websters beginning inventory consisted of the following: During 2019, Webster had the following purchases and sales: Required: 1. Compute the LIFO cost of the ending inventory assuming Webster uses a single inventory pool. Round cost index to 4 decimal places. 2. Compute the LIFO cost of the ending inventory assuming Webster uses three inventory pools. Round cost indexes to 4 decimal places.arrow_forward
- Lower-of-cost-or market inventory Data on the physical inventory of Moyer Company as of December 31, 20Y9, are presented below. Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows: Instructions Determine the inventory at cost and at the lower of cost or market, using the first-in, first-out method. Record the appropriate unit costs on an inventory sheet and complete the pricing of the inventory. When there are two different unit costs applicable to an item, proceed as follows: 1. Draw a line through the quantity, and insert the quantity and unit cost of the last purchase. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase. 3. Total the cost and market columns and insert the lower of the two totals in the LCM column. The first item on the inventory sheet has been completed below as an example.arrow_forwardMoore Company uses the LIFO cost flow assumption and carries Product A in inventory on December 31, 2019, at its unit cost of 9.50. Because of a sharp decline in demand for the product, the selling price was reduced to 10.00 per unit. Moores normal profit margin on Product A is 2.00, disposal costs are 1.00 per unit, and the replacement cost is 6.50. Under the lower of cost or market rule, Moores December 31, 2019, inventory of Product A should be valued at a unit cost of: a. 6.50 b. 9.00 c. 7.00 d. 9.50arrow_forwardEffects of Inventory Costing Methods Jefferson Enterprises has the following income statement data available for 2019: Jefferson uses a perpetual inventory accounting system and the average cost method. Jefferson is considering adopting the FIFO or LIFO method for costing inventory. Jeffersons accountant prepared the following data: Required: 1. Compute income before taxes, income taxes expense, and net income for each of the three inventory costing methods. (Round to the nearest dollar.) 2. CONCEPTUAL CONNECTION Why are the cost of goods sold and ending inventory amounts different for each of the three methods? What do these amounts tell us about the purchase price of inventory during the year? 3. CONCEPTUAL CONNECTION Which method produces the most realistic amount for net income? For inventory? Explain your answer.arrow_forward
- Dollar-Value LIFO Kwestel Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015. The following information about the inventory at the end of each year is available from Kwestels records: Required: Calculate the dollar-value LIFO inventory at the end of each year. Round to the nearest dollar.arrow_forwardInventory Write-Down Stiles Corporation uses the FIFO cost flow assumption and is in the process of applying the LCNRV rule for each of two products in its ending inventory. A profit margin of 30% on the selling price is considered normal for each product. Specific data for each product are as follows: Inventory Write-Down Use the information in E8-1. Assume that Stiles uses the LIFO cost flow assumption and is applying the LCM rule. Required: 1. What is the correct inventory value for each product? 2. Next Level With regard to requirement 1, what effect does the imposition of the constraints on market value have on the inventory valuations?arrow_forwardLower-of-cost-or-market inventory Data on the physical inventory of Ashwood Products Company as of December 31 follow: Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows: Instructions Determine the inventory at cost and also at the lower of cost or market applied on an item-by-item basis, using the first-in, first-out method. Record the appropriate unit costs on the inventory sheet, and complete the pricing of the inventory. When there are two different unit costs applicable to an item, proceed as follows: 1. Draw a line through the quantity, and insert the quantity and unit cost of the last purchase. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase. 3. Total the cost and market columns and insert the lower of the two totals in the LCM column. The first item on the inventory sheet has been completed as an example.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning