Question

Jones Company uses the retail method to estimate its ending inventory. Selected information about its year 2015 operations is as follows: a. January 1, 2015 beginning inventory had a cost of $10,000 and a retail value of $15,000. b. Purchases during 2015 cost $138,750 with an original retail value of $200,000 c. Freight costs were $1,000 for incoming merchandise and $2,500 for outgoing (sold) merchandise d. Net additional markups were $30,000 and net markdowns were $15,000 Ve. Based on prior experience, shrinkage due to shoplifting was estimated to be $1,500 of retail value f. Merchandise is sold to employees at a 20% of selling price discount. Employee sales are recorded in a separate account at the net selling price. The balance in this account at the end of 2015 is $25,000 g. Sales to customers totaled $175,000 for the year. this Required: Estimate ending inventory and cost of goods sold using the LIFO retail method (Assume stable prices). Your work should be shown below and provide a complete analysis showing how you arrived at your answers. knew F format

Answer 1

	Particulars	Cost	Retail Value
a	Beginning Inventory on 01.01.2015	10,000	15,000
b	Purchases during 2015	138,750	200,000
c	Freight costs (relevant only for incoming)	1,000	-
d	Net additional markups		15,000
e	Shrinkage due to shoplifting		1,500
f	Employee Sales at retail price (25,000/80%)		31,250
g	Sales to customers		175,000

Under LIFO method, the latest stock is sold first. Hence a total of $206,250 value of retail stock has been sold. (Sum of sales to customer and employees at original retail price)

Also, there has been Shrinkage due to shoplifting worth $1,500 retail value

Thus purchases in 2015 is totally exchausted and $7,750 worth of stock has been sold from Beginning Inventory

Thus Ending inventory at retail value is 15,000-7,750 = $7,250

Thus Ending inventory at cost = $7,250/(15,000/10,000) = $4,833.

Particulars	Retail Value ($)	Cost ($)	Remarks
Goods sold out of Beginning Inventory on 01.01.2015	198,500	137,709	Retail Value of goods sold/ (Retail value of Beginning Inventory / Cost of Beginning Inventory)
Goods sold out of Purchases during 2015	7,750	5,167	Retail Value of goods sold/ (Retail value of Purchases / Cost of Purchases)
Cost of goods sold		142,876