Problem 9-10 Dollar-value LIFO retail method [LO9-5] Smith-Kline Company maintai

Question

Problem 9-10 Dollar-value LIFO retail method [LO9-5] Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2018, the records indicate the following data s in 000s Cost Retail 91 $ 130 770 1,007 Beginning inventory Purchases Freight-in on purchases Purchase returns Net markups Net markdowns Net sales 31 9 917 Required Assuming the price level increased from 1 at January 1 to 1.15 at December 31, 2018, use the dollar-value LIFO retail method to approximate cost of ending inventory and cost of goods sold. (Do not round intermediate calculations. Round final answers to the nearest whole dollar. Enter your answers in thousands.) (S in 000s) Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Explanation / Answer

Calculation of value of Inventory ($ in 000s) Cost Retail Beginning inventory 91 130 Purchases 770 1007 Freight-in on purchases 31 Purchase returns -1 -3 Net markups 5 Goods available for sale 891 1139 Cost-to-retail percentages Conventional cost ratio: $891/$1139 = 78.23% Deduct: Net markdowns -9 Net sales -917 Ending Inventory at retail 213 Ending Inventory at cost: ($213 * 78.23%) 167 Estimated Cost of Goods sold: $917*78.23%            717 Dollar-Value LIFO Retail Method ($ in 000s) Cost Retail Beginning inventory @$1 91 130 *Beginning inventory @$1.15 104.65 149.5 Purchases 770 1007 Freight-in on purchases 31 Purchase returns -1 -3 Net markups 5 Goods available for sale 904.65 1158.5 Cost-to-retail percentages Conventional cost ratio: $904.65/$1158.5 = 78.09% Deduct: Net markdowns -9 Net sales -917 Ending Inventory at retail 232.5 Ending Inventory at cost: ($232.5 * 78.09%) 182 *We need to eliminate the effect of any price changes before we compare the ending inventory with the beginning inventory. The purpose of dollar-value LIFO retail is to eliminate the effects of price changes on ending inventory and beginning inventory.

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