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 $35,000 and a cost of $29,050 based on the conventional retail method.
2. Transactions during 2019 were as follows:

	Cost			Retail
Gross purchases	$	154,950		$	390,000
Purchase returns		5,500			30,000
Purchase discounts		4,000
Gross sales					341,000
Sales returns					5,000
Employee discounts					4,000
Freight-in		30,500
Net markups					15,000
Net markdowns					30,000

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2020, inventory was $46,800, the cost-to-retail percentage for 2020 under the LIFO retail method was 80%, 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 $40,660, the cost-to-retail percentage for 2021 under the LIFO retail method was 79%, and the appropriate price index was 107% of the January 1, 2020, price level.

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

Answer 1

LIFO retail method

	Cost	Retail
Beginning Inventory	$29,050	$35,000
Add: Purchases	$154,950	$390,000
Freight in	$30,500
Less: Purchase returns	($5,500)	($30,000)
Purchase discounts	($4,000)
Add: Net markups		$15,000
Less: Net markdowns		($30,000)
Goods available for sale ( Excluding beginning inventory)	$175,950	$345,000
Goods available for sale ( Including beginning inventory)	$205,000	$345,000
Cost to retail ratio($175,950/$345,000=51%)
Less: Net sales($341,009-$5,000)		($336,000)
Employee discounts		($4,000)
Estimated Ending inventory at retail		$40,000
Estimated Ending inventory at cost	$31,600

Ending inventory at cost

	Retail	Cost
Beginning Inventory	$35,000	$29,050
Current period layers	$5,000	$2,550($5,000×51%}
Total	$40,000	$31,600

Dollar value LIFO method for 2020

Ending inventory at year end retail prices	Ending inventory at base year Retail prices	Inventory layers at base year Retail prices	Inventory layers Converted to cost
$46,800	$45,000($46,800/1.04)	$40,000	$31,600
		$5,000	$4,160($5,000×1.04×80%)
Ending inventory at dollar value LIFO retail cost	$35,760

Dollar value LIFO method for 2021

Ending inventory at year end retail prices	Ending inventory at base year Retail prices	Inventory layers at base year Retail prices	Inventory layers Converted to cost
$40,660	$38,000($40,660/1.07)	$38,000	$30,020
Ending inventory at dollar value LIFO retail cost	$30,020