Question

You assemble the following information for Sweet Department Store, which computes its inventory under the dollar-value LIFO method. Inventory on January 1, 2020 Purchases Increase in price level for year Cost Retail $187,200 $240,000 307,200 384,000 9% Compute the cost of the inventory on December 31, 2020, assuming that the inventory at retail is (a) $235,440 and (b) $292,120. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to O decimal places, e.g. 28,987.) (a) Cost of the inventory on December 31, 2020 $ (b) Cost of the inventory on December 31, 2020 $

Answer 1

Answers

• Requirement [a]

	Step 1	Step 2	Step 3
Ending Inventory at Year end retail prices	Ending Inventory at Year end BASE YEAR retail prices	Inventory Layer at base year retail prices	Inventory Layers converted to cost
$235,440	$216,000	$216000	$168,480		[216000 x 78% x 1.00]
	[ 235440 / 1.09 ]
Total ending Inventory at dollar value LIFO retail cost				$168,480 ANSWER

Cost of Inventory on Dec 31, 2020 = $ 168,480

• Requirement [b]

	Step 1	Step 2	Step 3
Ending Inventory at Year end retail prices	Ending Inventory at Year end BASE YEAR retail prices	Inventory Layer at base year retail prices	Inventory Layers converted to cost
$292,120	$268,000	$240,000	$187,200		[240000 x 78% x 1.00]
	[ 292120 / 1.09 ]	$28,000	$24,416		[28000 x 80% x 1.09]
Total ending Inventory at dollar value LIFO retail cost				$211,616 ANSWER

Cost of Inventory on Dec 31, 2020 = $ 211,616

• Cost to retail %

	Cost	Retail	Cost to retail %
Beginning Inventory	$187,200	$240,000	78.000%
Net Purchases	$307,200	$384,000
Purchases	$307,200	$384,000	80.000%