Question

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2016. Available information follows:

1. The inventory at January 1, 2016, had a retail value of $37,000 and a cost of $30,090 based on the conventional retail method.
2. Transactions during 2016 were as follows:

	Cost			Retail
Gross purchases	$	177,030		$	410,000
Purchase returns		5,700			28,000
Purchase discounts		4,200
Gross sales					345,000
Sales returns					5,500
Employee discounts					3,000
Freight-in		29,500
Net markups					17,000
Net markdowns					28,000

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2017, inventory was $68,850, the cost-to-retail percentage for 2017 under the LIFO retail method was 70%, and the appropriate price index was 102% of the January 1, 2017, price level.
4. The retail value of the December 31, 2018, inventory was $40,950, the cost-to-retail percentage for 2018 under the LIFO retail method was 69%, and the appropriate price index was 105% 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

1. Estimated ending inventory for 2016 using the Conventional Retail Method:

	Cost	Retail
Beginning Inventory	30,090	37,000
Purchase	177,030	410,000
Purchase returns	(5,700)	(28,000)
Purchase Discount	(4,200)
Freight - in	29,500
Net markups		17,000
	226,720	436,000
Net markdowns		(28,000)
Cost available for Sale	226,720	408,000
Sales		(345,000)
Sales return		5,500
Employee discounts		(3,000)
Estimated ending inventory at retail		65,500

Coat to retail ratio = $ 226,720 / $ 436,000 = 0.52

Ending inventory at cost = Ending inventory at retail * Cost to retail ratio

= $ 65,500 * 0.52 = $ 34,060

2. Estimated ending inventory for 2016 using the LIFO Retail Method:

	Cost	Retail
Beginning Inventory	30,090	37,000
Purchase	177,030	410,000
Purchase returns	(5,700)	(28,000)
Purchase Discount	(4,200)
Freight - in	29,500
Net markups		17,000
Net markdowns		(28,000)
Total excluding beginning inventory	196,630	371,000
Total including beginning inventory	226,720	408,000
Cost available for Sale	226,720	408,000
Sales		(345,000)
Sales return		5,500
Employee discounts		(3,000)
Incremental inventory at Cost	34,715
Estimated ending inventory	261,435	65,500

Coat to retail ratio = $ 196,630 / $ 371,000 = 0.53

Incremental inventory at cost = Ending inventory at retail * Cost to retail ratio

= $ 65,500 * 0.53 = $ 34,715