On January 1, 2018, Pet Friendly Stores adopted the retail inventory method. Inv
ID: 2412442 • Letter: O
Question
On January 1, 2018, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2018 and 2019 are as follows: 2018 2019 Retail $105,400 $170,000 430,000 622,000 4,000 Cost Cost Retail Beginning inventory Purchases Purchase returns Freight-in Net markups Net markdowns Net sales to customers Sales to employees (net of 20% discount) Normal spoilage Price Index: $630,000 $792,000 2,450 2,900 6,200 2,600 6,000 5,150 4,150 500,000 14,400 1,900 8,600 6,400 690,000 14,400 5,300 January 1, 20118 December 31, 2018 December 31, 2019 1.00 1.04 1.20 Required 1. Estimate the 2018 and 2019 ending inventory and cost of goods sold using the dollar-value LIFO retail method 2. Estimate the 2018 ending inventory and cost of goods sold using the average cost retail method 3. Estimate the 2018 ending inventory and cost of goods sold using the conventional retail methodExplanation / Answer
Requirement 1
Employee discounts must be deducted in the retail column.
2018:
$14,400
= $18,000 – 14,400 = $3,600 = Employee discounts
.80
Cost
Retail
Beginning inventory
$ 105,400
$170,000
Plus: Purchases
430,000
622,000
Freight-in
6,200
Less: Purchase returns
(2,900)
(4,000)
Plus: Net markups
5,150
Less: Net markdowns
_______
(4,150)
Goods available for sale (excluding beg. inventory)
433,300
619,000
Goods available for sale (including beg. inventory)
538,700
789,000
$105,400
Base layer cost-to-retail percentage: = 62%
$170,000
$433,300
2018 layer cost-to-retail percentage: = 70%
$619,000
Less:
Normal spoilage
(1,900)
Net sales ($500,000 + 14,400)
Employee discounts
(514,400)
(3,600)
Estimated ending inventory at retail
$269,100
Estimated ending inventory at cost (below)
170,010
Estimated cost of goods sold
$368,690
2018
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
$269,100
$269,100 = $258,750 $170,000 (base) x 1.00 x 62% = $105,400
(above) 1.04 88,750 (2018) x 1.04 x 70% = 64,610
Total ending inventory at dollar-value LIFO retail cost ............ $170,010
Employees must be deducted in the retail column.
2019:
$14,400
= $18,000 – 14,400 = $3,600 = Employee discounts
.80
Cost
Retail
Beginning inventory
$170,010
$269,100
Plus: Purchases
630,000
792,000
Freight-in
6,000
Less: Purchase returns
(2,600)
(2,450)
Plus: Net markups
8,600
Less: Net markdowns
_______
(6,400)
Goods available for sale (excluding beg. inventory)
633,400
791,750
Goods available for sale (including beg. inventory)
803,410
1,060,850
$105,400
Base layer cost-to-retail percentage: --------- = 62%
$170,000
$433,300
2018 layer cost-to-retail percentage: = 70%
$619,000
$633,400
2019 layer cost-to-retail percentage: = 80%
$791,750
Less:
Normal spoilage
Net sales ($690,000 + 14,400)
(5,300)
(704,400)
Employee discounts
(3,600)
Estimated ending inventory at retail
$347,550
Estimated ending inventory at cost (below)
199,650
Estimated cost of goods sold
$603,760
2019
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
$347,550
$347,550 = $289,625 $170,000 (base) x 1.00 x 62% = $105,400
(above) 1.20 88,750 (2011) x 1.04 x 70% = 64,610
30,875 (2012) x 1.20 x 80% = 29,640
Total ending inventory at dollar-value LIFO retail cost ............ $199,650
Requirement 2
Employee discounts must be deducted in the retail column.
2018:
$14,400
= $18,000 – 14,400 = $3,600 = Employee discounts
.80
Cost
Retail
Beginning inventory
$ 105,400
$170,000
Plus: Purchases
430,000
622,000
Freight-in
6,200
Less: Purchase returns
(2,900)
(4,000)
Plus: Net markups
5,150
Less: Net markdowns
_______
(4,150)
Goods available for sale
538,700
789,000
$538,700
Cost-to-retail percentage: = 68.28%
$789,000
Less:
Normal spoilage
(1,900)
Net sales ($500,000 + 14,400)
Employee discounts
(514,400)
(3,600)
Estimated ending inventory at retail
$269,100
Estimated ending inventory at cost (68.28% x $269,100)
183,741
Estimated cost of goods sold
$354,959
Requirement 3
Employee discounts must be deducted in the retail column.
2018:
$14,400
= $18,000 – 14,400 = $3,600 = Employee discounts
.80
Cost
Retail
Beginning inventory
$ 105,400
$170,000
Plus: Purchases
430,000
622,000
Freight-in
6,200
Less: Purchase returns
(2,900)
(4,000)
Plus: Net markups
_______
5,150
538,700
793,150
$538,700
Cost-to-retail percentage: = 67.92%
$793,150
Less: Markdowns
(4,150)
Goods available for sale
789,000
Less:
Normal spoilage
(1,900)
Net sales ($500,000 + 14,400)
Employee discounts
(514,400)
(3,600)
Estimated ending inventory at retail
$269,100
Estimated ending inventory at cost (67.92% x $269,100)
182,773
Estimated cost of goods sold
$355,927
Cost
Retail
Beginning inventory
$ 105,400
$170,000
Plus: Purchases
430,000
622,000
Freight-in
6,200
Less: Purchase returns
(2,900)
(4,000)
Plus: Net markups
5,150
Less: Net markdowns
_______
(4,150)
Goods available for sale (excluding beg. inventory)
433,300
619,000
Goods available for sale (including beg. inventory)
538,700
789,000
$105,400
Base layer cost-to-retail percentage: = 62%
$170,000
$433,300
2018 layer cost-to-retail percentage: = 70%
$619,000
Less:
Normal spoilage
(1,900)
Net sales ($500,000 + 14,400)
Employee discounts
(514,400)
(3,600)
Estimated ending inventory at retail
$269,100
Estimated ending inventory at cost (below)
170,010
Estimated cost of goods sold
$368,690
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