Question

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2016. Available information follows: The inventory at January 1, 2016, had a retail value of $35,000 and a cost of $29,050 based on the conventional retail method. Transactions during 2016 were as follows: Cost Retail Gross purchases $ 154,950 $ 390,000 Purchase returns 5,500 30,000 Purchase discounts 4,000 Gross sales 341,000 Sales returns 5,000 Employee discounts 4,000 Freight-in 30,500 Net markups 15,000 Net markdowns 30,000 Sales to employees are recorded net of discounts. The retail value of the December 31, 2017, inventory was $46,800, the cost-to-retail percentage for 2017 under the LIFO retail method was 80%, and the appropriate price index was 104% of the January 1, 2017, price level. The retail value of the December 31, 2018, inventory was $40,660, the cost-to-retail percentage for 2018 under the LIFO retail method was 79%, and the appropriate price index was 107% of the January 1, 2017, price level.

Required: 1. Estimate ending inventory for 2016 using the conventional retail method. 2. Estimate ending inventory for 2016 assuming Raleigh Department Store used the LIFO retail method. 3. Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2017. Estimating ending inventory for 2017 and 2018.

Answer 1

Ans-1-Estimating ending inventroy for 2016 using the conventional retail method:-

Raleigh Department Store

Conventional Retail Method

	Cost	Retail
Beginning Inventory	29,050	35,000
Add: Purchases	154,950	390,000
Freight In	30,500
Less: Purchase Returns	-5,500	-30,000
Purchase Discounts	-4,000
Add: Net Markups		15,000
		410,000
Cost to Retail Percentage (205,000/380,000*100)	53.95%
Less: Net Markdowns		30,000
Goods Available for Sale	205,000	380,000
Less:
Net Sales (341,000-5,000)		336,000
Employee Discounts		4,000
Estimated Ending Inventory at Retail		$40,000
Estimated Ending Inventory at Cost ($40,000* 53.95%)	$21,580

Ans-2- The value of estimated ending inventory for 2016 with the use of LIFO retail method is determined with the use of provided below:-

Raleigh Department Store

LIFO Retail Method

	Cost	Retail
Beginning Inventory	29,050	35,000
Add: Purchases	154,950	390,000
Freight In	30,500
Less: Purchase Returns	-5,500	-30,000
Purchase Discounts	-4,000
Add: Net Markups		15,000
Less: Net Markdowns		-30,000
Goods Available for Sale (Excluding Beginning Inventory)	175,950	345,000
Goods Available for Sale (Including Beginning Inventory)	205,000	380,000
Cost to Retail Percentage (175,950/345,000 *100)	51%
Less:
Net Sales (341,000-5,000)		336,000
Employee Discounts		4,000
Estimated Ending Inventory at Retail		$40,000
Estimated Ending Inventory at Cost [(29,050+(40,000-35,000) *51%]	$31,600

Ans-3- The values of estimated ending inventory for 2017 and 2018 are calculated as follows:-

Raleigh Department Store

Dollar Value LIFO Retail Method

Ending Inventory at Year End Retail Prices	Ending Inventory at Base Year Retail Prices	Inventory Layers at Base Year Retail Prices	Inventory Layers Converted to Cost
2017
46,800	45,000 ($46,800/ 104 *100)	40,000	31,600 (40,000*1 * 31,600/ 40,000)
		5,000 (45,000-40,000)	4,160 (5,000*80% *104%)
		Total Ending Inventory at Dollar Value LIFO Retail Cost	35,760 (31,600+ 4,160)
2018
40,660	38,000 (40,660/107 *100)	38,000	30,020 (38,000*1*31,600/40,000)
		Total Ending Inventory at Dollar Value LIFO Retail Cost	30,020