Question

Required information [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: a. The inventory at January 1, 2019, had a retail value of $46,000 and a cost of $29,160 based on the conventional retail method b. Transactions during 2019 were as follows: Cost $291,540 6,000 5, 100 Retail $500,000 11,000 Gross purchases Purchase returns Purchase discounts Gross sales Sales returns Employee discounts Freight-in Net markups Net markdowns 500,000 8,500 3,50 26.000 11.000 Sales to employees are recorded net of discounts c. The retail value of the December 31, 2020. inventory was $61,800, the cost to retail percentage for 2020 under the LIFO retail method was 64%, and the appropriate price index was 103% of the January 1, 2020. price level. d. The retail value of the December 31, 2021. inventory was $49.290, the cost-to-retail percentage for 2021 under the LIFO retail method was 63%, and the appropriate price index was 106% of the January 1, 2020. price level. Required: d el < Prey 3 4 5 of 5 !!! Next >

Answer 1

(1)

	COST	RETAIL	COST TO RETAIL RATIO
Beginning Inventory	29,160	46,000
Add: Purchases	291,540	500,000
Less: Purchase Discounts	(5,100)
Less: Purchase Returns	(6,000)	(11,000)
Add: Freight-in	27,000
Add: Net Markups		26,000
Less: Net Markdowns		(11,000)
Goods available for sale	336,600	550,000
Cost to Retail Percentage	(336,600/550,000) x 100		61.2%
Less: Net Sales
Sales		500,000
Sales Return		(8,500)
Employee discounts		(3,500)
Net Sales		488,000
Estimated ending inventory at retail		62,000
Estimated ending inventory at cost	37,944

Estimated ending inventory at cost = $62,000 x 61.2% = $37,944

(2)

	COST	RETAIL	COST TO RETAIL RATIO
Beginning Inventory	29,160	46,000
Add: Purchases	291,540	500,000
Less: Purchase Discounts	(5,100)
Less: Purchase Returns	(6,000)	(11,000)
Add: Freight-in	27,000
Add: Net Markups		26,000
Less: Net Markdowns		(11,000)
Goods available for sale (excluding beginning inventory)	307,440	504,000
Goods available for sale (including beginning inventory)	336,600	550,000
Cost to Retail Percentage	(307,440/504,000) x 100		61%
Less: Net Sales
Sales		500,000
Sales Return		(8,500)
Employee discounts		(3,500)
Net Sales		488,000
Estimated ending inventory at retail		62,000
Estimated ending inventory at cost	38,920

Estimated ending inventory at cost = Beginning Inventory at cost + (Change in Inventory at retail cost x Cost to Retail Ratio) = $29,160 + $(62,000 – 46,000) x 61% = $29,160 + $9,760 = $38,920

(3)

(a)

Closing Inventory at Retail value (31.12.2020)		61,800
Closing Inventory deflated (using price index)		60,000 (61,800/103%)
Opening Inventory	38,920	62,000
Add: Change in Inventory	(1,331) [2,000 x 103% x 64%]	(2,000)
Closing Inventory at Cost (31.12.2020)	37,589

(b)

Closing Inventory at Retail value (31.12.2021)		49,290
Closing Inventory deflated (using price index)		46,500 (49,290/106%)
Opening Inventory	37,589	60,000
Add: Change in Inventory	(9,015) [9,015 x 106% x 63%]	(13,500)
Closing Inventory at Cost (31.12.2021)	28,574