Exercise 9-24 Sandhill Company began operations on January 1, 2016, adopting the

Question

Exercise 9-24
Sandhill Company began operations on January 1, 2016, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2016 and, because there was no beginning inventory, its ending inventory for 2016 of $37,700 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2017, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2017, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Purchases (net)

Determine the cost of the 2017 ending inventory under both (a) the conventional retail method and (b) the LIFO reatial method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)

(a) Ending inventory using conventional retail method $_____________

(b) Ending inventory LIFO reatial method $ _______________

Please show work, as I'm struggling with this question.

Cost Retail Inventory, Jan 1, 2017 $37,700 $60,000 Markdowns (net) 12,800 Markups (net) 22,400

Purchases (net)

128,600 178,200 Sales (net) 166,500

Explanation / Answer

a) Conventional Retail Method

Cost-to-retail ratio = $166,300 / $260,600 = 63.81%

Ending Inventory at cost = 63.81% x $81,300 = $51,878

b) LIFO retail Method

Cost-to-retail ratio = $128,600 / $187,800 = 68.48%

prior year cost-to-retail ratio = $37,700 / $60,000 = 62.83%

Computation of Ending inventory at LIFO cost 2017:

Ending inventory at retail = $81,300

Year 2016 = $60,000 x 62.83% = $37,698

Year 2017 = $21,300 x 68.48% = $14,586

Ending Inventory at LIFO cost = $37,698 + $14,586 = $52,284

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Cost Retail Inventory, January 1, 2017 $37,700 $60,000 Purchases (net) $128,600 $178,200 $166,300 $238,200 Add : Net Markups $22,400 Total $166,300 $260,600 Less: Net Markdowns $12,800 sales price of goods available $247,800 Less: Sales (net) $166,500 Ending Inventory at Retail $81,300

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