Question

Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2018, the records indicate the following data:

	($ in 000s)
	Cost			Retail
Beginning inventory	$	81		$	135
Purchases		575			1,015
Freight-in on purchases		32
Purchase returns		1			1
Net markups					3
Net markdowns					7
Net sales					918

Required:
Assuming the price level increased from 1 at January 1 to 1.20 at December 31, 2018, use the dollar-value LIFO retail method to approximate cost of ending inventory and cost of goods sold. (Do not round intermediate calculations. Round final answers to the nearest whole dollar. Enter your answers in thousands.)

	($ in 000s) Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Answer 1

Solution: Calculation of cost of ending inventory:

Particulars	cost($ in 000s)	Retail($ in 000s)
Beginning Inventory	81	135
Add: purchases	575	1,015
Freight In	32
Net markups		3
Less: Purchase return	(1)	(1)
Net markdowns		(7)
Goods available for sale (excluding beginning Inventory)	606	1,010
Goods available for sale (including beginning Inventory)	687	1,145
Base layer cost to retail percentage(81*100/135=60%)
2018 layer cost to retail percentage(606*100/1010= 60%)
Less: Net sales		(918)
Estimated ending inventory at current year retail prices		227
Estimated ending inventory at cost(given below)	(103)
Estimated cost of goods sold	584

Ending inventory at year end retail prices	Step1: Ending inventory at base year retail prices	Step2: inventory layers at base year retail prices	Step3: Inventory layers converted to cost
$227 (given above)	$227÷1.2 = $189	$135*1*60%	$81
		$31*1.2*60%	$22
Total ending inventory at dollar value LIFO retail cost			$103