Question

Problem 9-12 (Algo) Retail inventory method; various applications [LO9-3, 9-4, 9-5]

[The following information applies to the questions displayed below.]

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2019. Available information follows:

1. The inventory at January 1, 2019, had a retail value of $37,000 and a cost of $30,090 based on the conventional retail method.
2. Transactions during 2019 were as follows:

	Cost			Retail
Gross purchases	$	177,030		$	410,000
Purchase returns		5,700			28,000
Purchase discounts		4,200
Gross sales					345,000
Sales returns					5,500
Employee discounts					3,000
Freight-in		29,500
Net markups					17,000
Net markdowns					28,000

Sales to employees are recorded net of discounts.

3. The retail value of the December 31, 2020, inventory was $68,850, the cost-to-retail percentage for 2020 under the LIFO retail method was 70%, and the appropriate price index was 102% of the January 1, 2020, price level.
4. The retail value of the December 31, 2021, inventory was $40,950, the cost-to-retail percentage for 2021 under the LIFO retail method was 69%, and the appropriate price index was 105% of the January 1, 2020, price level.

Required: 1. Estimate ending inventory for 2019 using the conventional retail method. (Amounts to be deducted should be indicated with a minus sign.) Cost Retail Cost-to-Retail R atio Beginning inventory Goods available for sale $ 0 0 Cost-to-retail percentage Less: Net sales Sales Sales returns Employee discounts Estimated ending inventory at retail Estimated ending inventory at cost

Required:
2. Estimate ending inventory for 2019 assuming Raleigh Department Store used the LIFO retail method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solutions:

Raleigh Department Store
Conventional Retail Method
	Cost	Retail	Cost to Retail ratio
Beginning Inventory	30090	37000
Add: Purchases	177030	410000
Add: Freight In	29500
Less: Purchase Return	-5700	-28000
less: Purchase Discounts	-4200
Add: Net Markups		17000
		436000
Cost-to-retail Percentage ($226720/$436000)			52%
Less: Net Markdowns		-28000
Goods Available for Sale	226720	408000
Less: Net Sales ($345000 - $5500)		-3,39,500
Less: Employee Discounts		-3000
Estimated Ending Inventory at Retail		65500
Estimated Ending Inventory at Cost (Retail cost*Ratio%)	34060

Solution 2:

Raleigh Department Store
LIFO Retail Method
	Cost	Retail	Cost to Retail ratio
Beginning Inventory	30090	37000
Add: Purchases	177030	410000
Add: Freight In	29500
Less: Purchase Return	-5700	-28000
less: Purchase Discounts	-4200
Add: Net Markups		17000
Less: Net Markdowns		-28000
Goods Available for Sale (excluding beginning inventory)	196630	371000
Goods Available for Sale (including beginning inventory)	226720	408000
Cost-to-retail Percentage ($196630/371000)			53%
Less: Net Sales ($345000 - $5500)		-3,39,500.00
Less: Employee Discounts		-3000
Estimated Ending Inventory at Retail		65,500
Estimated Ending Inventory at Cost	45195
Estimated Ending Inventory at Cost (Working):
	Retail	Cost
Beginning Inventory	37000	30090
Current Period's Layer	28,500	15105
Total	65500	45195