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

ID: 2459901 • 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 exxamination 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 information:

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

Explanation / Answer

Solution-

Conventional LIFO Detail Cost Retail Detail Cost Retail Beginning Inventory                   27,500       45,000 Beginning Inventory                   27,500       45,000 Purchases (+)                 282,000     490,000 Purchases (+)                 282,000     490,000 Freight-in (+)                   26,500 Freight-in (+)                   26,500 Net markups (+)       25,000 Purchase returns (-)                    (6,500)      (10,000) Purchase returns (-)                    (6,500)      (10,000) Net markups (+)       25,000 Purchase discount (-)                    (5,000) Net markdowns (-)      (10,700) Net markdowns (-)      (10,700) Purchase discount (-)                    (5,000) Goods Available for sale                 324,500     539,300 Goods Available for sale(Excluding beginning inventory)                 297,000     494,300 Cost to retail % Goods Available for sale(Including beginning inventory)                 324,500     539,300 324500/539300 Cost to retail % 60.17% 297000/494300 Net Sales (Sales -Sales Return)
(492000-5000)    (487,000) 60.08% Employee Discount(-)        (3,000) Net Sales (Sales -Sales Return)
(492000-5000)    (487,000) Estimated ending inventory (retail)       49,300 Employee Discount(-)        (3,000) Estimated ending inventory (retail)       49,300 Estimated ending inventory (Cost) (49,300*60.28%) Estimated ending inventory (Cost) $          29,664.10 Beginning inventory 45000.00 27500.00 Current period’s layer 4300.00 0.60 2583.65    Total 49300.00 30083.65