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 $41,000 and a cost of $32,170 based on the conventional retail method.
2. Transactions during 2019 were as follows:

	Cost			Retail
Gross purchases	$	224,310		$	450,000
Purchase returns		6,100			24,000
Purchase discounts		4,600
Gross sales					408,500
Sales returns					5,000
Employee discounts					5,500
Freight-in		27,500
Net markups					21,000
Net markdowns					24,000

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2020, inventory was $59,800, the cost-to-retail percentage for 2020 under the LIFO retail method was 74%, and the appropriate price index was 104% of the January 1, 2020, price level.
4. The retail value of the December 31, 2021, inventory was $47,080, the cost-to-retail percentage for 2021 under the LIFO retail method was 73%, and the appropriate price index was 107% of the January 1, 2020, price level.

1. Estimate ending inventory for 2019 using the conventional retail method. (Amounts to be deducted should be indicated with a minus sign.)

2. Estimate ending inventory for 2019 assuming Raleigh Department Store used the LIFO retail method. (Amounts to be deducted should be indicated with a minus sign.)

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

Answer 1

1. Estimate ending inventory for 2019 using the conventional retail method.
Particulars	Cost	Retail	Cost to retail ratio
Beginning inventory	$32,170	$41,000
Add: Purchases	$224,310	$450,000
Freight in	$27,500
Less: Purchase Return	-$6,100	-$24,000
Purchase Discounts	-$4,600
Add: Net Markups		$21,000
Less: Net Markdowns		-$24,000
Goods Available For Sale	$273,280	$464,000
Cost to retail percentage			56%
($273,280 / ($464,000 + $24,000)
Less: Net Sales
Sales		$408,500
Sales returns		-$5,000
Employee Discounts		-$5,500
		$398,000
Estimated Ending inventory at retail ($464,000 - $398,000)		$66,000
Estimated Ending inventory at Cost ($66,000 * 56%)	$36,960

2. Estimate ending inventory for 2019 using the LIFO retail method.
Particulars	Cost	Retail	Cost to retail ratio
Beginning inventory	$32,170	$41,000
Add: Purchases	$224,310	$450,000
Freight in	$27,500
Less: Purchase Return	-$6,100	-$24,000
Purchase Discounts	-$4,600
Add: Net Markups		$21,000
Less: Net Markdowns		-$24,000
Goods Available For Sale (Excluding Beginning Inventory)	$241,110	$423,000
Goods Available For Sale (Including Beginning Inventory)	$273,280	$464,000
Cost to retail percentage			57%
($241,110 / ($423,000) *100
Less: Net Sales
Sales		$408,500
Sales returns		-$5,000
Employee Discounts		-$5,500
		$398,000
Estimated Ending inventory at retail ($423,000 - $398,000)		$25,000
Estimated Ending inventory at Cost ($25,000 * 57%)	$14,250

3. Estimate ending inventory dollar value for 2020 and 2021	Cost	Retail
A. 2020
Ending Inventory at Retail		$59,800
Ending Inventory Deflated ($59,800 / 1.04)		$57,500
Beginning Inventory	$14,250	$25,000
Add: Layer ($32,500 * 74% * 1.04)	$25,012	$32,500
Ending Inventory at Cost	$39,262
B. 2021
Ending Inventory at Retail		$47,080
Ending Inventory Deflated ($47,080 / 1.07)		$44,000
Beginning Inventory	$25,012	$57,500
Add: Layer ($13,500 * 73% * 1.07)	-$10,545	-$13,500
Ending Inventory at Cost	$14,467