Question

(CMA adapted)

*P9-12 (LO7) (Conventional and Dollar-Value LIFO Retail) As of January 1, 2017, Aristotle Inc. adopted the retail method of accounting for its merchandise inventory.

To prepare the store’s financial statements at June 30, 2017, you obtain the following data.

	Cost	Selling Price
Inventory, January 1	$ 30,000	$ 43,000
Markdowns		10,500
Markups		9,200
Markdown cancellations		6,500
Markup cancellations		3,200
Purchases	104,800	155,000
Sales revenue		154,000
Purchase returns	2,800	4,000
Sales returns and allowances		8,000

Instructions

(a) Prepare a schedule to compute Aristotle’s June 30, 2017, inventory under the conventional retail method of accounting for inventories.

(b) Without prejudice to your solution to part (a), assume that you computed the June 30, 2017, inventory to be $59,400 at retail and the ratio of cost to retail to be 70%. The general price level has increased from 100 at January 1, 2017, to 108 at June 30, 2017. Prepare a schedule to compute the June 30, 2017, inventory at the June 30 price level under the dollarvalue LIFO retail method.

Answer 1

Solution:

PART-1)

	Cost		Retail
Inventory as on Jan- 1	30,000		43,000
Purchases	104,800		155,000
Purchases return	-2,800		-4000
Total amount	132,000		194,000
PLUS: Net markups
Markups		9200
Markup cancellations		-3200	6,000
Total amount	132,000		200,000
MINUS: Net markups
Markdowns		10,500
Markdown cancellations		-6500	4000
SP of goods available			196,000
Sales revenue		154,000
Sales returns and allowances		-8,000	146,000
Ending inventory at retail			50,000

?

Cost-to-retail ratio: 132,000 / 200,000 = 66%

Inventory at lower-of-cost-or-market (66% * $50,000) = $33,000

PART-2)

Ending inventory at retail on Jan- 1 price level (59,400 / 1.08)	55,000
Minus: beginning inventory at retail	43,000
Inventory increment at retail, Jan -1 price level	12,000
Inventory increment at retail, June-30 price level (12,000 * 1.08)	12,960
Beginning inventory at cost	30,000
Inventory increment at cost at June 30 price level ($30,000 / $43,000 = 70%) ; ($12,960 * 70%*)	9,072
Ending inventory at dollar-value LIFO cost	39,072