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Raleigh Dept Store converted from the conventional retail method to the LIFO ret

ID: 2461530 • 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 examination 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 inforamtion follows:

a) The inventory at January 1, 2014 had a retail value of $45,000 and a cost of $27,500 based 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 markdowns                                                                        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 based on the LIFO retail method. 3) Calculate the cost of inventory for Decmeber 31, 2015 and 2016 based on the dollar-value LIFO retail method.

Explanation / Answer

Solution-

Conventional Detail Cost Retail Beginning Inventory                       27,500       45,000 Purchases (+)                     282,000     490,000 Freight-in (+)                       26,500 Net markups (+)       25,000 Purchase returns (-)                        (6,500)     (10,000) Purchase discount (-)                        (5,000) Net markdowns (-)     (11,700) Goods Available for sale                     324,500     538,300 Cost to retail % 324500/538300 60.28% Net Sales (Sales -Sales Return)
(492000-5000) (487,000) Employee Discount(-)       (3,000) Estimated ending inventory (retail)       48,300 Estimated ending inventory (Cost) (48,300*60.28%) $              29,116.38