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On January 1, 2018, HGC Camera Store adopted the dollar-value LIFO retail inventory method. Inventory transactions...

On January 1, 2018, HGC Camera Store adopted the dollar-value LIFO 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 $ 42,000 $ 60,000 Net purchases 94,500 118,000 $ 108,108 $ 133,200 Freight-in 3,000 3,500 Net markups 15,000 10,000 Net markdowns 3,000 3,200 Net sales to customers 117,360 119,890 Sales to employees (net of 10% discount) 3,600 6,300 Price Index: January 1, 2018 1.00 December 31, 2018 1.04 December 31, 2019 1.09

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Ans:

2018:

    

Particulars

      Cost

    Retail

Beginning inventory

$42,000

$ 60,000

Plus: Net purchases

94,500

118,000

          Freight-in

3,000

          Net markups

15,000

Less: Net markdowns

______

(3,000)

Goods available for sale (excluding beginning inventory)

97,500

130,000

Goods available for sale (including beginning inventory)

139,500

190,000

$ 97,500

Cost-to-retail percentage:                      = 75%

$130,000

Less: Net sales ($117,360 + 3,600)

            Employee discounts(Note:1)

(120,960)

       (400)

Estimated ending inventory at current year retail prices

$ 68,640

Estimated ending inventory at cost (below)

(46,680)

Estimated cost of goods sold

$92,820

___________________________________________________________________________

                              Step 1                             Step 2                     Step 3

   Ending               Ending                         Inventory               Inventory

Inventory           Inventory                         Layers                    Layers

at Year-end      at Base Year                  at Base Year          Converted to

Retail Prices     Retail Prices                 Retail Prices                   Cost

                          $68,640

   $68,640                         = $66,000        $60,000 (base)        x   1.00 x 70%    =         $42,000

   (above)              1.04                                 6,000 (2018)       x   1.04 x 75%    =            4,680

               Total ending inventory at dollar-value LIFO retail cost ............                  $46,680

Note:Employee discounts must be deducted in the retail column.

$3,600 = $4,000 – 3,600 = $400 = Employee discounts

0.90

2019:

      Particulars

      Cost

    Retail

Beginning inventory

$46,680

$ 68,640

Plus: Net purchases

108,108

133,200

          Freight-in

3,500

          Net markups

10,000

Less: Net markdowns

______

(3,200)

Goods available for sale (excluding beginning inventory)

111,608

140,000

Goods available for sale (including beginning inventory)

158,288

208,640

$ 111,608

Cost-to-retail percentage:                      = 79.72%

$140,000

Less: Net sales ($119,890 + 6,300)

            Employee discounts(note)

(126,190)

    (700)

Estimated ending inventory at current year retail prices

$ 81,750

Estimated ending inventory at cost (below)

(54,501)

Estimated cost of goods sold

$103,787

___________________________________________________________________________

                              Step 1                             Step 2                     Step 3

   Ending               Ending                         Inventory               Inventory

Inventory           Inventory                         Layers                    Layers

at Year-end     at Base Year                  at Base Year          Converted to

Retail Prices     Retail Prices                 Retail Prices                   Cost

                          $81,750

   $81,750                         = $75,000        $60,000 (base)        x   1.00 x 70%      =       $42,000

   (above)              1.09                                 6,000 (2018)       x   1.04 x 75%      =           4,680

                                                                     9,000 (2019)       x   1.09 x 79.72% =         7,821

               Total ending inventory at dollar-value LIFO retail cost ............                  $54,501

       Note: Employee discounts must be deducted in the retail column.

$6,300

                     = $7,000 – 6,300 = $700 = Employee discounts

          .90


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