On January 1, 2016, HGC Camera Store adopted the dollar-value LIFO retail invent
ID: 2459891 • 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 a 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 Mark downs 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 2016 and 2017 ending inventory at retail, ending inventory at cost and cost of goods sold using the dollar-value LIFO retail inventory method.
Explanation / Answer
Schedule for INventory at retial
Sale to employee has been calcullated at retail price . As 20 % discount is given, so selling price to employee will be reflecting 80% Selling price to customers. Inversely amount has been calculated at Sretail price
Beginning year cost to retail percentage = Beginning cost 2016 / beginning retail 2016
=28000 / 40000,= 70 %
2016 cost to retail percentage = Goods available for sale cost (excluding beginning) / Goods available for sale retail (excluding beginning)
=87000 / 116000, = 75 %
Now closing inventory at retail prices = 53000
* Calcullating inventory at cost price we work as follows
Ending inventory at retail prices= 53000
Price index at 2016 end = 1.06
Inventory at base year retail prices = 53000/1.06, =50000
Now we will further divide into as opening inventory and current year inventory as
We have 40000 opening retail inventory, since we are working LIFO method Latest purchased inventory was sold first and thereby opening inventory would have been part of closing inventory
Out of 50000, 40000 is from opening inventory with cost to retail ratio of 70 %
and remainning 10000 is from current purchases having cost to retail ratio of 75 %
We calculate Inventory at cost as
= Inventory at base year retail price x applicable index x cost to retail ratio
= (40000 x 1.00 x 70 % ) + ( 10000 x 1.06 x 75 %)
= 28000 + 7950, = 35950
Similarly You can complete working for 2017
only change will be applicable base price index will be 1.06 instead of 1.00
and applicable year end price index will be 1.10
2016 Cost 2016 Retail Beginning Inventory 28000 40000 Add: Purchases 85000 108000 Add: Freight 2000 Net Mark Ups 10000 Net Mark downs (2000) Goods available for sale ( excluding beginning inventory) 87000 116000 Goods available for sale ( including beginning inventory) 115000 156000 Less Sales to customers (100000) Less sales to employyes at ratil price (2400 / 80%) (3000) = Closing inventory 35950* 53000 COGS 79050Related Questions
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