Question

Cheyenne Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the Ed Access company's merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,500 would have been the same under either the conventional retail system or the LIFO retail system. On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, 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. Cost Retail Inventory, Jan. 1, 2020 $38,500 $60,600 Markdowns (net) 13,200 Markups (net) 22,200 Purchases (net) 132,900 174,500 Sales (net) 165,900 Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail 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 retail method A

Answer 1

Cheyenne Company
a- Conventional Retail Method
	Cost	Retail
Opening inventory	38500	60600
Add:- purchases (net)	132900	174500
	171400	235100
Add:- Net markups		22200
Total	171400	257300
Deduct :- Net markupdown		13200
Sale price of goods available		244100
Deduct :- sales		165900
Ending inventory at retail		78200
Cost to retail ratio = 171400 /257300 = 66.61 %
Ending inventory at cost = 78200 * 66.61% = $ 52093
b- LIFO Retail Method
	Cost	Retail
Opening inventory	38500	60600
purchases (net)	132900	174500
Net markups		22200
Net markupdown		-13200
Total ( excluding op. inventory )	132900	183500
Total ( including op. inventory )	171400	244100
Less:- sales		165900
Ending inventory at retail		78200
Cost to retail ratio = 132900 / 183500 = 72.43%
Ending inventory at cost
Ending inv. At retail prices	Layers	Cost to retail	Ending inv. At LIFO
78200	60600	63.53%	38499.18
	17600	72.43%	12747.68
			51246.86
38500 / 60600 = 63.53 %
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