Raleigh Dept Store converted from the conventional retail method to the LIFO ret
ID: 2461530 • 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 examination 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 inforamtion follows:
a) The inventory at January 1, 2014 had a retail value of $45,000 and a cost of $27,500 based 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 markdowns 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 based on the LIFO retail method. 3) Calculate the cost of inventory for Decmeber 31, 2015 and 2016 based on the dollar-value LIFO retail method.
Explanation / Answer
Solution-
Conventional Detail Cost Retail Beginning Inventory 27,500 45,000 Purchases (+) 282,000 490,000 Freight-in (+) 26,500 Net markups (+) 25,000 Purchase returns (-) (6,500) (10,000) Purchase discount (-) (5,000) Net markdowns (-) (11,700) Goods Available for sale 324,500 538,300 Cost to retail % 324500/538300 60.28% Net Sales (Sales -Sales Return)(492000-5000) (487,000) Employee Discount(-) (3,000) Estimated ending inventory (retail) 48,300 Estimated ending inventory (Cost) (48,300*60.28%) $ 29,116.38
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