Question

In: Accounting

Vaughn Company began operations late in 2019 and adopted the conventional retail inventory method. Because there...

Vaughn Company began operations late in 2019 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2019 and no markdowns during 2019, the ending inventory for 2019 was $13,869 under both the conventional retail method and the LIFO retail method. At the end of 2020, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2020. The following data are available for computations.

Cost

Retail

Inventory, January 1, 2020 $13,869 $19,500
Sales revenue 87,000
Net markups 8,600
Net markdowns 1,500
Purchases 63,300 83,600
Freight-in 11,074
Estimated theft 1,800


Compute the cost of the 2020 ending inventory under both:

(a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)

Ending inventory using the conventional retail method

$


(b) The LIFO retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.)

Ending inventory at cost

$

Ending inventory at retail

$

Solutions

Expert Solution

a. Conventional retail method-

Cost Retail Cost to retail ratio
Beginning 13,869 19,500
Purchase 63,300 83,600
Freight in 11,074
Mark up 8,600
Inventory after markup 88,243 111,700 88243 / 11170 = 0.79 or 79%
less:markdown -1,500
Inventory after markdown 110,200
less:sales -87,000
Estimated theft -1,800
Estimated inventory at retail 21,400

Ending inventory at Cost = Cost to retail ratio x Estimated inventory at retail             

                    = .79*21,400

                   = $ 16,906

b. LIFO Retail method-

Cost Retail Cost to retail ratio
Beginning 13,869 19,500 13,869 / 19,500= .71 or 71%
Purchase 63,300 83,600
Freight in 11,074
Mark up 8,600
less:mark down -1,500
Inventory without beginning inventory 74,374 90,700 74,374 / 90,700 =.82 or 82%
Inventory with beginning inventory 88.243 110,200
less:sales -87,000
Estimated theft -1,800
Inventory at retail 21,400

Under LIFO, units acquired last are sold first. So ending inventory are remaining from beginning inventory-

cost Retail
Ending inventory at cost, left from 2016 (beginning) 19,500 x .71= 13,845 19,500
Ending inventory at cost left from 2017 1900 x .82= 1558 21,400 - 19,500 = 1900
Total 15,403 21,400

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