Question

On January 1, 2018, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2018 and 2019 are as follows:

	2018							2019
	Cost			Retail				Cost			Retail
Beginning inventory	$	172,500		$	230,000
Purchases		460,000			580,000			$	670,000		$	937,000
Purchase returns		3,600			3,150				3,800			5,400
Freight-in		6,000							7,000
Net markups					5,750							11,000
Net markdowns					4,600							7,600
Net sales to customers					450,000							682,000
Sales to employees (net of 20% discount)					24,000							24,000
Normal spoilage					3,300							6,000
Price Index:
January 1, 2018		1.00
December 31, 2018		1.25
December 31, 2019		1.25

Required:
1. Estimate the 2018 and 2019 ending inventory and cost of goods sold using the dollar-value LIFO retail method.
2. Estimate the 2018 ending inventory and cost of goods sold using the average cost retail method.
3. Estimate the 2018 ending inventory and cost of goods sold using the conventional retail method.

Answer 1

Calculation steps for dollar-value LIFO are summarized as follows:

1. Determine the base year value. It may be beginning of the year or any other year. Inflation index is measured with reference to this year.
2. Compute the ending inventory values as per base year’s prices by applying inflation or price index
3. Calculate the increase or decrease in value by comparing the values in step 1 and 2. This will give us the change in inventory because of change in quantity.
4. Once the change is determined, reinstate the value as per current year’s prices.
5. Compute the value of ending inventory by summing up the values of layers.