Question

Shania Twains Corporation began operations on January 1, 2017, with a beginning inventory of $30,100 at cost and $50,000 at retail. The following information relates to 2017.

	Retail
Net purchases ($109,500 at cost)	$150,000
Net markups	10,000
Net markdowns	3,500
Sales revenue	126,900

Instructions

(a)  Assume Shania Twains Corporation decided to adopt the conventional retail method. Compute the ending inventory to be reported in the balance sheet.

(b)  Without prejudice to your solution in part (a), assume instead that Shania Twains Corporation decides to adopt the dollar-value LIFO retail method. The appropriate price indexes are 100 at January 1 and 110 at December 31 and the cost to retail ratio for 2017 is 70%. Compute the ending inventory to be reported in the balance sheet.

(c)  On the basis of the information in part (b), compute cost of goods sold.

Answer 1

Answer 1
	Cost	Retail
Beginning inventory	30,100	50,000
Net purchase	109,500	150,000
Total	139,600	200,000
Add: markup		10,000
Total	139,600	210,000
Less: Markdown		3,500
Total	139,600	206,500
Available goods at retail price		206,500
Less: sales revenue		126,900
Ending inventory at retail		79,600
Cost to retail ratio (139600/210000)		66.47619%
Ending inventory at cost (79600*66.47619%)		52,915

Answer 2 and 3
Ending inventory at retail		79,600.00
Multiply by: cost to retail ratio		70%
Ending inventory at cost		55,720.00
Divided by factor (110/100)		1.10
Ending inventory at base year price		50,654.55
Ending inventory at base year price		50,654.55
Less: beginning inventory at cost		30,100.00
Increase in inventory during the year		20,554.55
Beginning inventory (30100*100%)		30,100.00
Increase in inventory during the year (20555*110%)		22,610.50
Ending inventory at cost		52,710.50
Total cost of goods (30100+109500)		139,600.00
Less: ending inventory		52,710.50
Cost of goods sold		86,889.50