My CPA Firm has a new Client, Gregg Williams Incorporated. They make dance clothes for professional dancers. Because dance clothes go obsolete very fast they are very concerned about their inventory valuations. During our new client interview we learned the following information.
On January 1, 2010, Gregg Williams Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Williams continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Williams 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
Product A 10,000 $30 $300,000
Product B 9,000 25 225,000
Product A 17,000 35 $595,000
Product B 9,000 26 234,000
Product A 13,000 40 $520,000
Product B 10,000 32 320,000
Mr. Williams wants us to prepare a schedule to compute the internal conversion price indexes for 2010 and 2011 and wants us to round indexes to two decimal places
He also wants us to prepare a schedule to compute the inventory amounts at December 31, 2010 and 2011, using the dollar-value LIFO inventory method.