Question

On January 1, 2018, HGC Camera Store adopted the dollar-value LIFO retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2018 and 2019 are as follows:

	2018						2019
	Cost			Retail			Cost			Retail
Beginning inventory	$	42,000		$	60,000
Net purchases		94,500			118,000		$	108,108		$	133,200
Freight-in		3,000						3,500
Net markups					15,000						10,000
Net markdowns					3,000						3,200
Net sales to customers					117,360						119,890
Sales to employees (net of 10% discount)					3,600						6,300
Price Index:
January 1, 2018											1.00
December 31, 2018											1.04
December 31, 2019											1.09

Required:

Required:
Estimate the 2018 and 2019 ending inventory and cost of goods sold using the dollar-value LIFO retail inventory method. (Do not round other intermediate calculations. Round your cost-to-retail percentage calculations to 2 decimal places and final answers to the nearest whole dollar.)

	2018 2019 Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Answer 1

Employee discounts must be deducted in the retail column.

2018:

          $3,600

                     = $4,000 – 3,600 = $400 = Employee discounts

          .90

	Cost	Retail
Beginning inventory	$42,000	$ 60,000
Plus: Net purchases	94,500	118,000
Freight-in	3,000
Net markups		15,000
Less: Net markdowns	______	(3,000)
Goods available for sale (excluding beginning inventory)	97,500	130,000
Goods available for sale (including beginning inventory)	139,500	190,000
$ 97,500 Cost-to-retail percentage:                      = 75% $130,000
Less: Net sales ($117,360 + 3,600)             Employee discounts		(120,960)        (400)
Estimated ending inventory at current year retail prices		$ 68,640
Estimated ending inventory at cost (below)	(46,680)
Estimated cost of goods sold	$92,820
___________________________________________________________________________                               Step 1                             Step 2                     Step 3    Ending               Ending                         Inventory               Inventory Inventory           Inventory                         Layers                    Layers at Year-end      at Base Year                  at Base Year          Converted to Retail Prices     Retail Prices                 Retail Prices                   Cost                           $68,640    $68,640                         = $66,000        $60,000 (base)        x   1.00 x 70%    =         $42,000    (above)              1.04                                 6,000 (2018)       x   1.04 x 75%    =            4,680                Total ending inventory at dollar-value LIFO retail cost ............                  $46,680

2019:

          $6,300

                     = $7,000 – 6,300 = $700 = Employee discounts

          .90

	Cost	Retail
Beginning inventory	$46,680	$ 68,640
Plus: Net purchases	108,108	133,200
Freight-in	3,500
Net markups		10,000
Less: Net markdowns	______	(3,200)
Goods available for sale (excluding beginning inventory)	111,608	140,000
Goods available for sale (including beginning inventory)	158,288	208,640
$ 111,608 Cost-to-retail percentage:                      = 79.72% $140,000
Less: Net sales ($119,890 + 6,300)             Employee discounts		(126,190)     (700)
Estimated ending inventory at current year retail prices		$ 81,750
Estimated ending inventory at cost (below)	(54,501)
Estimated cost of goods sold	$103,787
___________________________________________________________________________                               Step 1                             Step 2                     Step 3    Ending               Ending                         Inventory               Inventory Inventory           Inventory                         Layers                    Layers at Year-end     at Base Year                  at Base Year          Converted to Retail Prices     Retail Prices                 Retail Prices                   Cost                           $81,750    $81,750                         = $75,000        $60,000 (base)        x   1.00 x 70%      =       $42,000    (above)              1.09                                 6,000 (2018)       x   1.04 x 75%      =           4,680                                                                      9,000 (2019)       x   1.09 x 79.72% =         7,821                Total ending inventory at dollar-value LIFO retail cost ............                  $54,501