Question

As of January 1, 2017, Waterway 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 $33,000 $42,800 Markdowns 9,800 Markups 9,800 Markdown cancellations 6,000 Markup cancellations 3,200 Purchases 96,328 152,400 Sales revenue 151,900 Purchase returns 2,800 4,100 Sales returns and allowances 7,700 Compute Waterway’s June 30, 2017, inventory under the conventional retail method of accounting for inventories. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.) Inventory under the conventional retail method Without prejudice to your solution to part (a), assume that you computed the June 30, 2017, inventory to be $60,480 at retail and the ratio of cost to retail to be 77.10%. The general price level has increased from 100 at January 1, 2017, to 108 at June 30, 2017. Compute the June 30, 2017, inventory at the June 30 price level under the dollar-value LIFO retail method. (Round ratios for computational purposes to 2 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.) Ending inventory at dollar-value LIFO cost $

Answer 1

Part A

	Cost		Retail
Inventory January 1	33000		42800
Purchases	96328		152400
Purchase returns	(2800)		(4100)
Totals	126528		191100
Add: Net Markups
Markups		9800
Markup cancellations		(3200)	6600
Totals	126528		197700
Deduct: Net markdowns
Markdowns		9800
Markdown cancellations		(6000)	(3800)
Sales price of goods available			193900
Sales revenue		151900
Sales returns and allowances		(7700)	(144200)
Ending inventory at retail			$49700

Cost to retail ratio = 126528/197700 = 64%

Inventory under the conventional retail method = 49700*64% = $31808

Part B

Ending inventory at retail January 1 price level (60480/1.08)	56000
Less beginning inventory at retail	42800
Inventory incremental at retail, January 1 price level	13200
Inventory incremental at retail, June 30 price level (13200*1.08)	$14256
Beginning inventory at cost	33000
Inventory increment at cost at June 30 price level (14256*77.10%)	10991
Ending inventory at dollar-value LIFO cost	$43991

33000/42800 = 77.10%