Question

Problem 9-13 (Algo) Retail inventory method; various applications [LO9-3, 9-4, 9-5] Skip to question [The following information applies to the questions displayed below.] On January 1, 2021, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2021 and 2022 are as follows: 2021 2022 Cost Retail Cost Retail Beginning inventory $ 121,600 $ 190,000 Purchases 520,000 708,000 $ 630,000 $ 1,056,000 Purchase returns 2,500 5,000 3,000 3,600 Freight-in 4,200 6,000 Net markups 6,300 9,400 Net markdowns 4,300 6,800 Net sales to customers 570,000 698,000 Sales to employees (net of 25% discount) 16,500 16,500 Normal spoilage 1,500 5,700 Price Index: January 1, 2021 1.00 December 31, 2021 1.20 December 31, 2022 1.60 Problem 9-13 (Algo) Part 1 Required: 1. Estimate the 2021 and 2022 ending inventory and cost of goods sold using the dollar-value LIFO retail method.

Answer 1

	Note	Working	2021	2021	2022	2022
			Cost	Retail Price	Cost	Retail Price
Opening Inventory	A		121,600	190,000	175,990	301,500
Cost to retail ratio		Retail /Cost *100		64.00%		58.37%
Purchases	B		520,000	708,000	630,000	1,056,000
Purchase Return	C		(2,500)	(5,000)	(3,000)	(3,600)
Freight in	D		4,200		6,000
Markup	E			6,300		9,400
Markdown	F			(4,300)		(6,800)
Total Purchases	G	SUM(B:F)	521,700	705,000	633,000	1,055,000
Cost to retail ratio		Retail /Cost *100		74.00%		60.00%
Normal Spoilage	H			(1,500)		(5,700)
Cost of Goods sold	L	A+G+H	643,300	893,500	808,990	1,350,800
Sales
Sales to customers	I	Given		570,000		698,000
Sales to employees	J	16500/0.75		22,000		22,000
Total Sales	K	I+J		592,000		720,000
Closing Inventory		L-K		301,500		630,800

Working Note for Closing Inventory

1 ) For ending on December 31, 2021

Ending inventory as on Decemeber 31, 2021 = $ 301,500

Ending inventory adjusted for price changes @ 1.2 = 301,500/1.2 = $ 251,250

Date	Inventory $	Price Index	Cost to retail	Inventory Cost $
1/1/2021	190,000	1	64%	121,600
12/31/2021	61,250	1.2	74%	54,390
	251,250			175,990

1 ) For ending on December 31, 2022

Ending inventory as on Decemeber 31, 2022 = $ 630,800

Ending inventory adjusted for price changes @ 1.6 = 630,800/1.6 = $ 394,250

Date	Inventory $	Price Index	Cost to retail	Inventory Cost $
12/31/2021	301,500	1.2	58.37%	211,183
12/31/2022	92,750	1.6	60.00%	89,040
	394,250			300,223