In: Accounting
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 $53,000 and a cost of $36,930 based on the conventional retail method.
Transactions during 2016 were as follows:
Cost | Retail | |||||
Gross purchases | $ | 327,870 | $ | 570,000 | ||
Purchase returns | 6,700 | 18,000 | ||||
Purchase discounts | 5,800 | |||||
Gross sales | 568,000 | |||||
Sales returns | 7,500 | |||||
Employee discounts | 2,000 | |||||
Freight-in | 30,500 | |||||
Net markups | 33,000 | |||||
Net markdowns | 18,000 | |||||
Sales to employees are recorded net of discounts.
The retail value of the December 31, 2017, inventory was $61,880, the cost-to-retail percentage for 2017 under the LIFO retail method was 70%, and the appropriate price index was 104% of the January 1, 2017, price level.
The retail value of the December 31, 2018, inventory was $53,500, the cost-to-retail percentage for 2018 under the LIFO retail method was 69%, and the appropriate price index was 107% of the January 1, 2017, price level.
Required:
1. Estimate ending inventory for 2016 using the
conventional retail method.
2. Estimate ending inventory for 2016 assuming
Raleigh Department Store used the LIFO retail method.
3. Assume Raleigh Department Store adopts the
dollar-value LIFO retail method on January 1, 2017. Estimating
ending inventory for 2017 and 2018.
Answer 1. | ||
Raleigh Department Store | ||
Conventional Retail Method | ||
Cost | Retail | |
Beginning Inventory | 36,930.00 | 53,000.00 |
Add: Purchases | 327,870.00 | 570,000.00 |
Freight In | 30,500.00 | |
Less: Purchase Return | (6,700.00) | (18,000.00) |
Purchase Discounts | (5,800.00) | |
Add: Net Markups | 33,000.00 | |
638,000.00 | ||
Cost-to-retail Percentage = $382,800 / $638,000 = 60% | ||
Less: Net Markdowns | (18,000.00) | |
Goods Available for Sale | 382,800.00 | 620,000.00 |
Less: | ||
Net Sales ($568,000 - $7,500) | (560,500.00) | |
Employee Discounts | (2,000.00) | |
Estimated Ending Inventory at Retail | 57,500.00 | |
Estimated Ending Inventory at Cost - $57,500 X 60% | 34,500.00 | |
Answer 2. | ||
Raleigh Department Store | ||
LIFO Retail Method | ||
Cost | Retail | |
Beginning Inventory | 36,930.00 | 53,000.00 |
Add: Purchases | 327,870.00 | 570,000.00 |
Freight In | 30,500.00 | |
Less: Purchase Return | (6,700.00) | (18,000.00) |
Purchase Discounts | (5,800.00) | |
Add: Net Markups | 33,000.00 | |
Less: Net Markdowns | (18,000.00) | |
Goods Available for Sale (Exclusive Beginning Inventory) | 345,870.00 | 567,000.00 |
Goods Available for Sale (Including Beginning Inventory) | 382,800.00 | 620,000.00 |
Cost-to-retail Percentage = 61% | ||
Less: | ||
Net Sales ($568,000 - $7,500) | (560,500.00) | |
Employee Discounts | (2,000.00) | |
Estimated Ending Inventory at Retail | 57,500.00 | |
Estimated Ending Inventory at Cost: | ||
Retail | Cost | |
Beginning Inventory | 53,000.00 | 36,930.00 |
Current Period's Layer | 4,500.00 | 2,745.00 |
Total | 57,500.00 | 39,675.00 |
Answer 3. |
Raleigh Department Store | |||
Dollar-Value LIFO Retail Method | |||
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 |
2017 | |||
61,880.00 | 59,500.00 | 57,500.00 | 39,675.00 |
2,000.00 | 1,456.00 | ||
Total Ending Inventory at dollar-value LIFO retail Cost | 41,131.00 | ||
2018 | |||
53,500.00 | 50,000.00 | 50,000.00 | 34,500.00 |
Total Ending Inventory at dollar-value LIFO retail Cost | 34,500.00 |