Question

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2016. Available information follows: The inventory at January 1, 2016, had a retail value of $47,000 and a cost of $30,860 based on the conventional retail method.

Transactions during 2016 were as follows:

Cost Retail

Gross purchases $ 301,860 $ 510,000

Purchase returns 6,100 12,000

Purchase discounts 5,200

Gross sales 476,000

Sales returns 8,000

Employee discounts 6,000

Freight-in 27,500

Net markups 27,000

Net markdowns 12,000

Sales to employees are recorded net of discounts. The retail value of the December 31, 2017, inventory was $92,560, the cost-to-retail percentage for 2017 under the LIFO retail method was 65%, and the appropriate price index was 104% of the January 1, 2017, price level. The retail value of the December 31, 2018, inventory was $50,290, the cost-to-retail percentage for 2018 under the LIFO retail method was 64%, and the appropriate price index was 107% of the January 1, 2017, price level.

Required: a. Estimate ending inventory for 2016 using the conventional retail method.

b. Estimate ending inventory for 2016 assuming Raleigh Department Store used the LIFO retail method.

c. Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2017. Estimating ending inventory for 2017 and 2018.

Answer 1

1. Statement Showing Ending inventory for 2016 usingConventional Retail Method					Dollar Value LIFO Retail Method
Particular		Cost	Retail		Year	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
Beginning Inventory		$30,860	$47,000		2017	$92,560.00	$89,000.00	$86,000.00	$56,040.00	(a)
Add Purchases		$301,680	$510,000				92560/104%		$86000*(56040/86000)	(b)
Freight In		$27,500						(92560-89000)=3560	($3560*72%*104%)=$2665.73
Less Purchase Returns		-$6,100	-$12,000			Total Ending Inventory at Dollar Value LIFO Retail Cost			$53,171	(a+b)
Purchase Discounts		-$5,200
Add Net Markups			$34,000		2018	$50,290.00	$47,000.00	$47,000.00	$30,626.51
			$579,000				50290/107%		47000*(56040/86000)
Cost to Retail Percentage (348740/567000*100)	62%
Less Net Markdowns			-$12,000			Total Ending Inventory at Dollar Value LIFO Retail Cost			$30,626.51
Goods Available for Sale		$348,740	$567,000
Less:
Net Sales ($476000-$8000)			-$468,000
Employee Discounts			-$6,000
Estimated Ending Inventory at Retail			$93,000
Estimated Ending Inventory at Cost (93000*62%)		$57,660
2. Statement Showing Ending inventory for 2016 using LIFO Retail Method
		Cost	Retail
Beginning Inventory		$30,860	$47,000
Add Purchases		$301,680	$510,000
Freight In		$27,500
Less Purchase Returns		-$6,100	-$12,000
Purchase Discounts		-$5,200
Add Net Markups			$27,000
Less Net Markdowns			-$12,000
Goods Available for Sale (Excluding Beginning Inventory)		$317,880	$513,000
Goods Available for Sale (Including Beginning Inventory)		$348,740	$560,000
Cost to Retail Percentage (317880/513000*100)	62%
Less:
Net Sales ($476000-$8000)			-$468,000
Employee Discounts			-$6,000
Estimated Ending Inventory at Retail			$86,000
Estimated Ending Inventory at Cost [(30860 + (86000- 47000)*62%]		$55,040