On January 1, 2016, ABC Company adopted the dollar-value LIFO retail inventory m
ID: 2594048 • Letter: O
Question
On January 1, 2016, ABC Company adopted the dollar-value LIFO retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2016 and 2017 are as follows 2016 2017 Cost Retail Cost Retail Beginning $28,000 S40,000 nventory Net purchases Freight-in Net markups Net markdowns Net sales to 85,000 108,000 $90,000 $114,000 2,000 2,500 10,000 2,000 100,000 8,000 2,200 104,000 customers Price Index: January 1, 2016 1.00 December 31, 1.06 2016 1.10 December 31, 2017 Required Estimate the 2016 and 2017 ending inventory and cost of goods sold using the dollar-value LIFO retail inventory methodExplanation / Answer
COMPUTATION FOR YEAR 2016
Cost
Retail
Beginning inventory
$ 28,000
$ 40,000
Plus: Purchases
85,000
1,08,000
Freight-in
2,000
Net markups
10,000
Less: Net markdowns
(2,000)
Goods available for sale (excluding beginning inventory)
87,000
1,16,000
Goods available for sale (including beginning inventory)
1,15,000
1,56,000
$28,000
Base year cost-to-retail percentage: = 70%
$40,000
$87,000
2016 cost-to-retail percentage: = 75%
$1,16,000
Less: Net sales
(1,10,000)
Estimated ending inventory at current year retail prices
$ 56,000
Estimated ending inventory at cost (below)
(38,200)
Estimated cost of goods sold
$76,800
Step 1 Step 2 Step 3
Ending Ending Inventory Inventory
Inventory Inventory Layers Layers
at Year-end at Base Year at Base Year Converted to
Retail Prices Retail Prices Retail Prices Cost
$56,000
$56,000 = $52,830 $40,000 (base) x 1.00 x 70% = $28,000
(above) 1.06 12,830 x 1.06 x 75% = 10,200
$52,830
Total ending inventory at dollar-value LIFO retail cost ................... $38,200
COMPUTATION FOR YEAR 2017
Cost
Retail
Beginning inventory
$ 38,200
$ 56,000
Plus: Purchases
90,000
1,14,000
Freight-in
2,500
Net markups
8,000
Less: Net markdowns
(2,200)
Goods available for sale (excluding beginning inventory)
92,500
1,19,800
Goods available for sale (including beginning inventory)
1,30,700
1,75,800
$38,200
Base year cost-to-retail percentage: = 68.21%
$56,000
$92,500
2017 cost-to-retail percentage: = 77.21%
$1,19,800
Less: Net sales
(1,04,000)
Estimated ending inventory at current year retail prices
$ 71,800
Estimated ending inventory at cost (below)
(51,691)
Estimated cost of goods sold
$79,009
Step 1 Step 2 Step 3
Ending Ending Inventory Inventory
Inventory Inventory Layers Layers
at Year-end at Base Year at Base Year Converted to
Retail Prices Retail Prices Retail Prices Cost
$71,800
$71,800 *1.06= $69,189 $56,000 (base) x 1.06 x 68.21% = $40,489
(above) 1.10 13,189 x 1.10 x 77.21% = 11,202
$69,189
Total ending inventory at dollar-value LIFO retail cost ................... $51,691
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Cost
Retail
Beginning inventory
$ 28,000
$ 40,000
Plus: Purchases
85,000
1,08,000
Freight-in
2,000
Net markups
10,000
Less: Net markdowns
(2,000)
Goods available for sale (excluding beginning inventory)
87,000
1,16,000
Goods available for sale (including beginning inventory)
1,15,000
1,56,000
$28,000
Base year cost-to-retail percentage: = 70%
$40,000
$87,000
2016 cost-to-retail percentage: = 75%
$1,16,000
Less: Net sales
(1,10,000)
Estimated ending inventory at current year retail prices
$ 56,000
Estimated ending inventory at cost (below)
(38,200)
Estimated cost of goods sold
$76,800
Step 1 Step 2 Step 3
Ending Ending Inventory Inventory
Inventory Inventory Layers Layers
at Year-end at Base Year at Base Year Converted to
Retail Prices Retail Prices Retail Prices Cost
$56,000
$56,000 = $52,830 $40,000 (base) x 1.00 x 70% = $28,000
(above) 1.06 12,830 x 1.06 x 75% = 10,200
$52,830
Total ending inventory at dollar-value LIFO retail cost ................... $38,200
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