Raleigh Dept Store converted from the conventional retail method to the LIFO ret
ID: 2459901 • Letter: R
Question
Raleigh Dept Store converted from the conventional retail method to the LIFO retail method on January 1, 2014 and is now considering converting to the dollar-value LIFO retail inventory method. Management requested, during your exxamination of the financial statements for the year ended December 31, 2016, that you furnish a summary showing certain computations of inventory costs for the past three years Available information:
a) The inventory at January 1, 2014, had a retail value of $45,000 and a cost of $27,500 bassed on the conventional retail method.
b) Transactions during 2014 were as follows:
Cost Retail
Gross purchases $282,000 $490,000
Purchase returns 6,500 10,000
Purchase discounts 5,000
Gross sales 492,000
Sales returns 5,000
Employee Discounts 3,000
Freight in 26,500
Net mark ups 25,000
Net mark downs 10,000
Sales to employees are recorded net of discounts.
c) The retail value of the December 31, 2015 inventory was $56,100, the cost to retail percentage for 2015 under the LIFO retail method was 62% and the appropriate price index was 102% of the January 1, 2015 price level.
d) The retail value of the December 31, 2016 inventory was $48,300, the cost to retail percentage for 2016 under the LIFO retail method was 61% and the appropriate price index was 105% of the January 1, 2015 price level.
Required: 1. Prepare a schedule showing the computation of the cost of inventory at December 31, 2014 based on the conventional retail method. 2. Prepare a schedule showing the computation of the cost of inventory at December 31, 2014 bsed on the LIFO retail method. 3. Calculate the cost of inventory for December 31, 2015 and 2016 based on the dollar-value LIFO retail method.
Explanation / Answer
Solution-
Conventional LIFO Detail Cost Retail Detail Cost Retail Beginning Inventory 27,500 45,000 Beginning Inventory 27,500 45,000 Purchases (+) 282,000 490,000 Purchases (+) 282,000 490,000 Freight-in (+) 26,500 Freight-in (+) 26,500 Net markups (+) 25,000 Purchase returns (-) (6,500) (10,000) Purchase returns (-) (6,500) (10,000) Net markups (+) 25,000 Purchase discount (-) (5,000) Net markdowns (-) (10,700) Net markdowns (-) (10,700) Purchase discount (-) (5,000) Goods Available for sale 324,500 539,300 Goods Available for sale(Excluding beginning inventory) 297,000 494,300 Cost to retail % Goods Available for sale(Including beginning inventory) 324,500 539,300 324500/539300 Cost to retail % 60.17% 297000/494300 Net Sales (Sales -Sales Return)(492000-5000) (487,000) 60.08% Employee Discount(-) (3,000) Net Sales (Sales -Sales Return)
(492000-5000) (487,000) Estimated ending inventory (retail) 49,300 Employee Discount(-) (3,000) Estimated ending inventory (retail) 49,300 Estimated ending inventory (Cost) (49,300*60.28%) Estimated ending inventory (Cost) $ 29,664.10 Beginning inventory 45000.00 27500.00 Current period’s layer 4300.00 0.60 2583.65 Total 49300.00 30083.65
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