Question

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2019. Available information follows:

1. The inventory at January 1, 2019, had a retail value of $45,000 and a cost of $27,500 based on the conventional retail method.
2. Transactions during 2019 were as follows:
   

	Cost			Retail
Gross purchases	$	282,000		$	490,000
Purchase returns		6,500			10,000
Purchase discounts		5,000
Sales					492,000
Sales returns					5,000
Employee discounts					3,000
Freight-in		26,500
Net markups					25,000
Net markdowns					10,000

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2020, inventory was $56,100, the cost-to-retail percentage for 2020 under the LIFO retail method was 62%, and the appropriate price index was 102% of the January 1, 2020, price level.
4. The retail value of the December 31, 2021, inventory was $48,300, the cost-to-retail percentage for 2021 under the LIFO retail method was 61%, and the appropriate price index was 105% of the January 1, 2020, price level.

Required:
3. Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2020. Estimate ending inventory for 2020 and 2021.

Answer 1

Working note: Calculation of cost to retail and ending inventory using LIFO retail method

	Cost	Retail	Cost to retail ratio
Beginning Inventory	27,500	45,000
Add: Purchases	2,82,000	4,90,000
Less: Purchase Discounts	-5,000
Less: Purchase Returns	-6,500	-10,000
Add: Freight-in	26,500
Add: Net Markups		25,000
Less: Net Markdowns		-10,000
Goods available for sale (excluding beginning inventory)	2,97,000	4,95,000
Goods available for sale (including beginning inventory)	3,24,500	5,40,000
Cost to Retail Percentage = 297000 / 495000 * 100			60%
Less: Net Sales
Sales		4,92,000
Sales Return		-5,000
Employee discounts		-3,000
Net Sales		4,84,000
Estimated ending inventory at retail		56,000
Estimated ending inventory at cost	33,600

Estimated ending inventory at cost = Beginning Inventory at cost + (Change in Inventory at retail cost x Cost to Retail Ratio)

= $27,500 + $(56,000 - 45,000) * 60%

= $27,500 + $6,600

= $34,100

3.

Closing Inventory at Retail value (31.12.2020)		56,100
Closing Inventory deflated (56100 / 102%)		55,000
Opening Inventory	34,100	56,000
Change in Inventory (1000 * 102% * 62%)	-632	-1,000
Closing Inventory at Cost (31.12.2020)	33,468

Closing Inventory at Retail value (31.12.2021)		48,300
Closing Inventory deflated (48300 / 105%)		46,000
Opening Inventory	33,468	55,000
Add: Change in Inventory (9000 * 105% * 61%)	-5,765	-9,000
Closing Inventory at Cost (31.12.2021)	27,703