Converting FIFO Inventory to Dollar-Value LIFO and Preparing Year-End Adjustments to the LIFO Reserve Stetson Industries has been using FIFO for all internal and external reporting purposes. At the start of Year 5, the company adopted dollar-value LIFO for external financial statement and income tax purposes. Its derived internal price indices are: Year 4 is 1.00; Year 5 is 1.10; Year 6 is 1.15; and Year 7 is 1.20. The FIFO inventory records show the following for its single inventory pool. Year Year 4 Ending Inventory Year 5 Ending Inventory Year 6 Ending Inventory Year 7 Ending Inventory Required FIFO Basis $600,000 699,600 855,600 864,000 a. Convert the ending FIFO inventory to a LIFO basis for Year 5, Year 6, and Year 7, assuming the dollar-value LIFO method and using the internal price indices.
Converting FIFO Inventory to Dollar-Value LIFO and Preparing Year-End Adjustments to the LIFO Reserve Stetson Industries has been using FIFO for all internal and external reporting purposes. At the start of Year 5, the company adopted dollar-value LIFO for external financial statement and income tax purposes. Its derived internal price indices are: Year 4 is 1.00; Year 5 is 1.10; Year 6 is 1.15; and Year 7 is 1.20. The FIFO inventory records show the following for its single inventory pool. Year Year 4 Ending Inventory Year 5 Ending Inventory Year 6 Ending Inventory Year 7 Ending Inventory Required FIFO Basis $600,000 699,600 855,600 864,000 a. Convert the ending FIFO inventory to a LIFO basis for Year 5, Year 6, and Year 7, assuming the dollar-value LIFO method and using the internal price indices.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Answer ALL of PART B only.
Do not Give solution In image format
![b. Prepare the December 31 year-end journal entry for Year 5, Year 6, and Year 7, to convert inventory from FIFO to LIFO.
Date
Dec. 31, Year 5 Inventory
Allowance to Reduce FIFO Inventory to LIFO Basis
To adjust LIFO Reserve
Dec. 31, Year 6 Inventory
Account Name
Allowance to Reduce FIFO Inventory to LIFO Basis
To adjust LIFO Reserve
Dec. 31, Year 7 Inventory
Allowance to Reduce FIFO Inventory to LIFO Basis
To adjust LIFO Reserve
Dr.
69,960
0
41,750
0
43,200
0
Cr.
0 x
69,960 *
0 x
41,750 x
0x
43,200 x](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F956b79d0-b8ff-4513-ab04-2143e5c531c4%2F31975905-9100-463f-86f5-6b3660a68c7c%2Fdbobaxj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:b. Prepare the December 31 year-end journal entry for Year 5, Year 6, and Year 7, to convert inventory from FIFO to LIFO.
Date
Dec. 31, Year 5 Inventory
Allowance to Reduce FIFO Inventory to LIFO Basis
To adjust LIFO Reserve
Dec. 31, Year 6 Inventory
Account Name
Allowance to Reduce FIFO Inventory to LIFO Basis
To adjust LIFO Reserve
Dec. 31, Year 7 Inventory
Allowance to Reduce FIFO Inventory to LIFO Basis
To adjust LIFO Reserve
Dr.
69,960
0
41,750
0
43,200
0
Cr.
0 x
69,960 *
0 x
41,750 x
0x
43,200 x
![Converting FIFO Inventory to Dollar-Value LIFO and Preparing Year-End Adjustments to the LIFO Reserve
Stetson Industries has been using FIFO for all internal and external reporting purposes. At the start of Year 5, the company adopted dollar-value LIFO for external financial statement and income tax purposes. Its derived
internal price indices are: Year 4 is 1.00; Year 5 is 1.10; Year 6 is 1.15; and Year 7 is 1.20. The FIFO inventory records show the following for its single inventory pool.
Year
Year 4 Ending Inventory
Year 5 Ending Inventory
Year 6 Ending Inventory 855,600
Year 7 Ending Inventory
864,000
Required
a. Convert the ending FIFO inventory to a LIFO basis for Year 5, Year 6, and Year 7, assuming the dollar-value LIFO method and using the internal price indices.
Ending Inventory Price Ending Inventory
Date (End of year prices) Index (Base year prices)
600,000 1.00 $ 600,000 $
699,600✔ 1.10
636,000 ✓
Year 4 $
✓
Inventory
Layers
600,000
600.000 ✓
36,000✔
Price
Index
1.00 S
1.00
1.10
Year 5
Year 6
FIFO Basis
$600,000
699,600
Year 7
855,600✔ 1.15
864,000✔ 1.20
744,000 ✓
720,000 ✓
600,000 ✓
36,000 ✓
108,000 ✓
1.00
1.10
1.15
600,000 ✓
1.00
36,000 ✓
1.10
84,000 ✓ 1.15
0✔ 1.20
S
S
S
Ending Inventory
(Dollar Value LIFO)
600,000 ✓
600,000✔
39,600 ✓
639,600
600,000 ✓
39,600✔
124,200 ✓
763,800
600,000✔
39,600 ✓
96,600✔
0✔
736,200](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F956b79d0-b8ff-4513-ab04-2143e5c531c4%2F31975905-9100-463f-86f5-6b3660a68c7c%2F1jw3pp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Converting FIFO Inventory to Dollar-Value LIFO and Preparing Year-End Adjustments to the LIFO Reserve
Stetson Industries has been using FIFO for all internal and external reporting purposes. At the start of Year 5, the company adopted dollar-value LIFO for external financial statement and income tax purposes. Its derived
internal price indices are: Year 4 is 1.00; Year 5 is 1.10; Year 6 is 1.15; and Year 7 is 1.20. The FIFO inventory records show the following for its single inventory pool.
Year
Year 4 Ending Inventory
Year 5 Ending Inventory
Year 6 Ending Inventory 855,600
Year 7 Ending Inventory
864,000
Required
a. Convert the ending FIFO inventory to a LIFO basis for Year 5, Year 6, and Year 7, assuming the dollar-value LIFO method and using the internal price indices.
Ending Inventory Price Ending Inventory
Date (End of year prices) Index (Base year prices)
600,000 1.00 $ 600,000 $
699,600✔ 1.10
636,000 ✓
Year 4 $
✓
Inventory
Layers
600,000
600.000 ✓
36,000✔
Price
Index
1.00 S
1.00
1.10
Year 5
Year 6
FIFO Basis
$600,000
699,600
Year 7
855,600✔ 1.15
864,000✔ 1.20
744,000 ✓
720,000 ✓
600,000 ✓
36,000 ✓
108,000 ✓
1.00
1.10
1.15
600,000 ✓
1.00
36,000 ✓
1.10
84,000 ✓ 1.15
0✔ 1.20
S
S
S
Ending Inventory
(Dollar Value LIFO)
600,000 ✓
600,000✔
39,600 ✓
639,600
600,000 ✓
39,600✔
124,200 ✓
763,800
600,000✔
39,600 ✓
96,600✔
0✔
736,200
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