Raleigh Department Store uses the conventional retail method for the year ended
ID: 2557389 • Letter: R
Question
Raleigh Department Store uses the conventional retail method for the year ended December 31, 2016. Available information follows: The inventory at January 1, 2016, had a retail value of $47,000 and a cost of $30,860 based on the conventional retail method.
Transactions during 2016 were as follows:
Cost Retail
Gross purchases $ 301,860 $ 510,000
Purchase returns 6,100 12,000
Purchase discounts 5,200
Gross sales 476,000
Sales returns 8,000
Employee discounts 6,000
Freight-in 27,500
Net markups 27,000
Net markdowns 12,000
Sales to employees are recorded net of discounts. The retail value of the December 31, 2017, inventory was $92,560, the cost-to-retail percentage for 2017 under the LIFO retail method was 65%, and the appropriate price index was 104% of the January 1, 2017, price level. The retail value of the December 31, 2018, inventory was $50,290, the cost-to-retail percentage for 2018 under the LIFO retail method was 64%, and the appropriate price index was 107% of the January 1, 2017, price level.
Required: a. Estimate ending inventory for 2016 using the conventional retail method.
b. Estimate ending inventory for 2016 assuming Raleigh Department Store used the LIFO retail method.
c. Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2017. Estimating ending inventory for 2017 and 2018.
Explanation / Answer
1. Statement Showing Ending inventory for 2016 usingConventional Retail Method Dollar Value LIFO Retail Method Particular Cost Retail Year 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 Beginning Inventory $30,860 $47,000 2017 $92,560.00 $89,000.00 $86,000.00 $56,040.00 (a) Add Purchases $301,680 $510,000 92560/104% $86000*(56040/86000) (b) Freight In $27,500 (92560-89000)=3560 ($3560*72%*104%)=$2665.73 Less Purchase Returns -$6,100 -$12,000 Total Ending Inventory at Dollar Value LIFO Retail Cost $53,171 (a+b) Purchase Discounts -$5,200 Add Net Markups $34,000 2018 $50,290.00 $47,000.00 $47,000.00 $30,626.51 $579,000 50290/107% 47000*(56040/86000) Cost to Retail Percentage (348740/567000*100) 62% Less Net Markdowns -$12,000 Total Ending Inventory at Dollar Value LIFO Retail Cost $30,626.51 Goods Available for Sale $348,740 $567,000 Less: Net Sales ($476000-$8000) -$468,000 Employee Discounts -$6,000 Estimated Ending Inventory at Retail $93,000 Estimated Ending Inventory at Cost (93000*62%) $57,660 2. Statement Showing Ending inventory for 2016 using LIFO Retail Method Cost Retail Beginning Inventory $30,860 $47,000 Add Purchases $301,680 $510,000 Freight In $27,500 Less Purchase Returns -$6,100 -$12,000 Purchase Discounts -$5,200 Add Net Markups $27,000 Less Net Markdowns -$12,000 Goods Available for Sale (Excluding Beginning Inventory) $317,880 $513,000 Goods Available for Sale (Including Beginning Inventory) $348,740 $560,000 Cost to Retail Percentage (317880/513000*100) 62% Less: Net Sales ($476000-$8000) -$468,000 Employee Discounts -$6,000 Estimated Ending Inventory at Retail $86,000 Estimated Ending Inventory at Cost [(30860 + (86000- 47000)*62%] $55,040
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