On January 1, 2016, Pet Friendly Stores adopted the retail inventory method. Inv
ID: 2427406 • Letter: O
Question
On January 1, 2016, Pet Friendly Stores adopted the 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 Purchases Purchase returns Freight-in Net markups Net markdowns Net sales to customerS Sales to employees (net of 20% $159,250 $245,000 450,000 631,000 $685,000 $918,000 4,500 3,550 4,100 4,500 7,000 11,600 7,900 720,000 24,000 6,800 4,600 500,000 24,000 3,500 discount) Normal spoilage Price Index January 1, 2016 December 31, 2016 December 31, 2017 1.00 1.25 1.25 Required: 1. Estimate the 2016 and 2017 ending inventory and cost of goods sold using the dollar-value LIFO retail method. 2017 Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods soldExplanation / Answer
A) The ending 2016 and 2017 Ending inventory and cost of goods sold using Dollar-value LIFO method
2016
Particulars Cost $ Retail $
Beginning Inventory 159250 245000
(+)Net Purchases (450000-4500) 445500 (631000-3550) 627450
(+)Net markups 5900
(-)Net mark downs (4600)
Goods available for sale(excluding beginning inventory) 445500 628750
Goods avaliable for sale(including beginning inventory) 604750 873750
Base year cost to retail percentage (159250/245000) 0.65
2016 cost to retail percentage (445500/628750) 0.71
Less: Net sales (500000)
Estimated ending inventory at current year retail prices 373750
Estimated ending inventory at cost (207175)
Estimated cost of goods sold 397575
Ending inventory Step 1 Step 2 Step 3
at year-end retail prices ending inv at base year inv layers at base inv layers
retail prices base year retail price converted to cost
373750 (373750/1.25)299000 245000 (245000*1*0.65)
159250
(299000-245000) (54000*1.25*0.71)
54000 47925
Total ending inventory at Dollar-valueLIFO retail cost 159250+47925=207175
2017
Particulars Cost $ Retail $
Beginning Inventory 207175 373750
(+)Net Purchases (685000-4100)680900 (918000-4500)913500
(+)Net markups 11600
(-)Net mark downs (7900)
Goods available for sale(excluding beginning inventory) 680900 917200
Goods avaliable for sale(including beginning inventory) 888075 1290950
Base year cost to retail percentage (207175/ 373750) 0.55
2016 cost to retail percentage ( 680900/ 917200) 0.74
Less: Net sales (720000)
Estimated ending inventory at current year retail prices 570950
Estimated ending inventory at cost (282347)
Estimated cost of goods sold 605728
Ending inventory Step 1 Step 2 Step 3
at year-end retail prices ending inv at base year inv layers at base inv layers
retail prices base year retail price converted to cost
570950 (570950/1.25)456760 373750 (373750*1*0.55)
205563
(456760-373750) (83010*1.25*0.74)
83010 76784
Total ending inventory at Dollar-valueLIFO retail cost 205563+76784=282347
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