Question

On January 1, 2018, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2018 and 2019 are as follows: 2018 2019 Cost Retail Cost Retail Beginning inventory $ 140,000 $ 200,000 Purchases 440,000 594,000 $ 680,000 $ 854,000 Purchase returns 3,500 4,350 3,200 4,550 Freight-in 6,600 5,000 Net markups 5,450 9,800 Net markdowns 4,300 7,000 Net sales to customers 480,000 702,000 Sales to employees (net of 20% discount) 19,200 19,200 Normal spoilage 2,900 4,000 Price Index: January 1, 2018 1.00 December 31, 2018 1.25 December 31, 2019 1.25 Required: 1. Estimate the 2018 and 2019 ending inventory and cost of goods sold using the dollar-value LIFO retail method. 2. Estimate the 2018 ending inventory and cost of goods sold using the average cost retail method. 3. Estimate the 2018 ending inventory and cost of goods sold using the conventional retail method.

Answer 1

1. LIFO Retail method:-(2018)

2018 Index price = 1

Cost($)   Retail price($)

Beginning inventory 140,000 200,000

Ratio of cost to retail(140/200) = 70%

Purchases (net) 436500(440000-3500) 589650(594000-4350)

Add:- Mark up 5450

Frieght charges 6600

Less:- Mark down 4300

Normal loss 2900

Totals(excluding beginning inv) 436500 594,500

Ratio of cost to retail(436500/594500) = 73.42%

Total (Including beginning inventory) 576,500 794,500(cost of goods available for sale)

Net sales (499,200)

Ending inventory at retail 295,300  

Ending inventory at retail deflated to base year (beginning year)

Price index = 125 (295300 / 1.25) 236,240(Dollar value LIFO retail ending inventory)

Beginning inventory retail at base year price (200,000)

Inventory increase ( retail) from beginning period 36,240

1. LIFO Retail method:-(2019)

2019 Index price = 1.25

Cost($)   Retail price($)

Beginning inventory 200,000 236,240

Ratio of cost to retail(2000000/236240) = 84.66%

Purchases (net) 676800(680000-3200) 849450(854000-4550)

Add:- Mark up 9800

Frieght 5000

Less:- Mark down 7000

Normal spoilage 4000

Totals(excluding beginning inv) 676800 853,250

Ratio of cost to retail(676800/853,250) = 79.32%

Total (Including beginning inventory) 876,800 1,089,490(cost of goods available for sale)

Net sales (721,200)

Ending inventory at retail 368,290  

Ending inventory at retail deflated to base year (beginning year)

Price index = 125 (368290 / 1.25) 294,632(Dollar value LIFO retail ending inventory)

Beginning inventory retail at base year price (236,240)

Inventory increase ( retail) from beginning period 58,392

Cost of goods sold for the year 2018 and 2019:-

2018($) 2019($)

Beginning stock 140000 200000

Purchases 436500 676800

Closing stock (236240) (294632)

Cost of goods sold 340,260 582,168

2.

3. Conventional retail method:-

Cost Retail

Beginning inventory 140000 200000

Purchases(net) 436500 589650

Add:- Mark up 5450

Frieght in 6600

Less:- Normal spoilage 2900

Available inventory 576500 798800

Sales(including mark down)   503,500

Ending inventory 295,300

Mark up % ( 576500 / 798800) = 72.17%

Ending inventory at cost (295300 * 72.17%) 213118