On January 1, 2016 HGC Camera Store adopted the dollar-value LIFO retail invento
ID: 2461532 • Letter: O
Question
On January 1, 2016 HGC Camera Store adopted the dollar-value LIFO retail inventory method. Inventory transactions at both cost and retail and cost indexes for 2016 and 2017 are as follows:
2016 2017
Cost Retail Cost Retail
Beginning inventory 28,000 40,000
Net purchases 85,000 108,000 90,000 114,000
Freight in 2,000 2,500
Net markups 10,000 8,000
Net markdowns 2,000 2,200
Net sales to customers 100,000 104,000
Sales to employees (net of 20% discount) 2,400 4,000
Price index:
January 1, 2016 1.00
December 31, 2016 1.06
December 31, 2017 1.10
Required: Estimate the 2016 and 2017 ending inventory at retail and and ending inventory at cost and cost of good sold using the dollar value LIFO retail inventory method.
Explanation / Answer
The ending inventory at cost for the year 2016 and 2017 using retail method is calculated as under; 2016 2017 Cost Retail Cost Retail Beginning Inventory $ 28,000 $ 40,000 Net Purchases $ 85,000 $ 108,000 $ 90,000 $ 114,000 Freight in $ 2,000 $ 2,500 Net mark up $ 10,000 $ 8,000 Goods available for sale $ 115,000 $ 158,000 $ 92,500 $ 122,000 Net mark down $ (2,000) $ (2,200) Net sales to customers $ (110,000) $ (104,000) Sale to employees(gross) $ (3,000) $ (5,000) Ending inventory $ 43,000 $ 10,800 Value of ending inventory at cost under retail method @0.72785, 0.75820 $ (31,298) $ (8,189) Cost of goods sold $ 83,702 $ 84,311 Cost to retail ratio=cost of goods available for sale/Retail value of goods available for sale 2016 =$115,000/$158,000 0.72785 Value of ending inventory of the year 2016 =$43,000*0.72785 $31,298 2017 =$92,500/$122,000 0.75820 Value of ending inventory of the year 2017 =$10,800*0.75820 $8,189 The ending inventory at cost for the year 2016 and 2017 using dollar value LIFO retail method is calculated as under; 2016 2017 Cost Retail Cost Retail Beginning Inventory $ 28,000 $ 40,000 Net Purchases $ 85,000 $ 108,000 $ 90,000 $ 114,000 Freight in $ 2,000 $ 2,500 Net mark up $ 10,000 $ 8,000 Net mark down $ (2,000) $ (2,200) Goods available for sale(Excluding beginning inventory) $ 87,000 $ 116,000 $ 92,500 $ 119,800 Goods available for sale(Including beginning inventory) $ 115,000 $ 156,000 $ 92,500 $ 119,800 Less: Net sales to customers $ (110,000) $ (104,000) Sale to employees(gross) $ (3,000) $ (5,000) Ending inventory $ (43,000) $ (10,800) Ending inventory at cost $ (28,450) $ 8,316.00 Cost of goods sold at cost $ 86,550 $ 100,816 Base year cost to retail percentage =$28,000/$40,000 0.70 Cost to retail percentage =$87,000/$116,000 =$92,500/$119,800 0.75 0.77 Ending inventory calculation for the year 2016 and 2017 using dollar value LIFO retail method is as under: For the year 2016: 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 $ (43,000) =$43,000/1.06 =$40,000 =$40,000*1*0.70 $ (40,566.04) $ 28,000 =$40,566.04-$40,000 =$566.04 =$566.04*1.06*0.75 $ 450.00 Ending Inventory for the year 2016 =$28,000+$450 $ 28,450 For the year 2017: 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 $ (10,800) =$10,800/1.10 $ (9,818.18) $ (9,818.18) =$9818.18*1.10*0.77 $ (8,316.00) Ending Inventory for the year 2017 $ (8,316.00)
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