Question

Exercise 9-25

Kingbird Company began operations late in 2016 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2016 and no markdowns during 2016, the ending inventory for 2016 was $14,110 under both the conventional retail method and the LIFO retail method. At the end of 2017, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2017. The following data are available for computations.

		Cost		Retail
Inventory, January 1, 2017		$14,110		$18,600
Sales revenue				73,000
Net markups				9,900
Net markdowns				1,600
Purchases		62,900		74,000
Freight-in		2,940
Estimated theft				1,900

Compute the cost of the 2017 ending inventory under both:

(a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)

Ending inventory using the conventional retail method

$

(b) The LIFO retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.)

Ending inventory at cost		$
Ending inventory at retail		$

Answer 1

Exercise 9-25:

1. Conventional Retail Method

Ending Inventory at Cost		$ 77220
Ending Inventory at Retail		$ 99000

Notes:

Particulars	Cost	Retail	Ratio
Inventory , jan 1 2017	$ 14110	$ 18600
Purchases (Net)	$ 62900	$ 74000
Freight In	$ 2940
Add: Mark ups(Net)		$ 9900
Total Goods Available	$ 79950	$102500
Less: Mark downs(Net)		$ 1600
Less :Sales (Net)		$ 100900
Less: Theft		-$ 1900
Ending Inventory at Retail		$ 99000
Ending Inventory at Cost	$ 77220 (Note 2)

2. Cost to Retail Ratio=$ 79950/$102500=0.78

Ending Inventory at Cost= Cost to Retail Ratio x Ending Inventory at Retail

=0.78 X $ 99000=$ 77220

2. LIFO Retail Method

Ending Inventory at Cost		$ 76822
Ending Inventory at Retail		$ 99000

Notes:

Particulars	Cost	Retail	Ratio
Inventory , jan 1 2017	$ 14110	$ 18600
Purchases (Net)	$ 62900	$ 74000
Freight In	$ 2940
Add: Mark ups(Net)		$ 9900
Total Goods Available	$ 79950	$102500
Less: Mark downs(Net)		$ 1600
Less :Sales (Net)		$ 100900
Less: Theft		-$ 1900
Ending Inventory at Retail		$ 99000
Beginning Inventory	$ 14110	$ 18600
Add: Layers	$ 62712 ($ 80400 X 0.78)	$ 80400
Ending Inventory at Cost	$ 76822