Question

In: Accounting

Grouper Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of...

Grouper Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $37,700 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Cost

Retail

Inventory, Jan. 1, 2020

$37,700 $60,500

Markdowns (net)

13,000

Markups (net)

22,000

Purchases (net)

133,500 177,500

Sales (net)

168,600


Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)

(a)

Ending inventory using conventional retail method

($enter a dollar amount rounded to 0 decimal places)

(b)

Ending inventory LIFO retail method

($enter a dollar amount rounded to 0 decimal places)

Solutions

Expert Solution

1. Conventional retail method

Cost Retail
Beginning inventory $37,700 $60,500
Add: net purchases $133,500 $177,500
Net markups $22,000
Totals $171,200 $260,000
Cost-to-retail ratio =$171,200/$260,000 =65.84%
Less: Net markdowns ($13,000)
Sales ($168,600)
Ending inventory at retail $78,400
Ending inventory at cost($78,400×65.84%) $51,619

B. LIFO retail method

Cost Retail
Beginning inventory $37,700 $60,500
Add: Net Purchases $133,500 $177,500
Net markups $22,000
Less: Net markdowns ($13,000)
Total ( excluding beginning inventory) $133,500 $186,500
Total ( Including beginning inventory) $171,200 $247,000
Cost-to-retail ratio =$171,200/$247,000 =69.31%
Less: Net sales ($168,600)
Ending inventory at retail $78,400
Ending inventory at cost($78,400×69.31%) $54,339

____×____

All the best


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