Question

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2019. Available information follows: a. The inventory at January 1, 2019, had a retail value of $40,000 and a cost of $31,650 based on the conventional retail method. b. Transactions during 2019 were as follows: Cost $212,100 6,000 4,500 Retail $440,000 25,000 Gross purchases Purchase returns Purchase discounts Gross sales Sales returns Employee discounts Freight-in Net markups Net markdowns 361,500 10,000 6,000 28,000 20,000 25,000 Sales to employees are recorded net of discounts. c. The retail value of the December 31, 2020, inventory was $101,325, the cost-to-retail percentage for 2020 under the LIFO retail method was 67%, and the appropriate price index was 105% of the January 1, 2020, price level. d. The retail value of the December 31, 2021, inventory was $46,980, the cost-to-retail percentage for 2021 under the LIFO retail method was 66%, and the appropriate price index was 108% of the January 1, 2020, price level.

Answer 1

Solution:

1) Calculation of ending inventory under conventional retail method

	Cost $	Retail $	Cost-to-Retail Ratio
Beginning inventory	31650	40000
Gross Purchases	212100	440000
freight in	28000
Purchase returns	-6000	-25000
Purchase discount	-4500
Net Markups		20,000
Goods available for sale	261250	455000
Cost-to-Retail percentage			57%
Less: Net sales
Gross Sales		-361500
Sales returns		10000
Empolyee discounts		-6000
Net Markdown		-25000
Estimated ending inventory at retail		62500
Estimated ending inventory at cost	35,625

Estimated ending inventory at cost = Estimated ending inventory at retail * Cost-to-Retail Ratio

= $62,500* 57% =$ 35,625

Note:

1) Under conventional retail method, Net markdown is not considered in cost to retail ratio calculation.

2) For net sales = gross sales - sales returns = $ 361,500 - $10,000 = $351,500