Question

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 $35,000 and a cost of $29,050 based on the conventional retail method. b. Transactions during 2019 were as follows: Cost Retail Gross purchases $154,950 $390, 000 Purchase returns 5,500 4,000 30,000 Purchase discounts Gross sales Sales returns 341,000 5,000 Employee discounts Freight-in Net markups Net markdowns 4,000 30,500 15,000 30,000 Sales to employees are recorded net of discounts. c. The retail value of the December 31, 2020, inventory was $46,800, the cost-to-retail percentage for 2020 under the LIFO retail method was 80%, and the appropriate price index was 104% of the January 1, 2020, price level. d. The retail value of the December 31, 2021, inventory was $40,660, the cost-to-retail percentage for 2021 under the LIFO retail method was 79%, and the appropriate price index was 107% of the January 1, 2020, price level.

Answer 1

Part 1

	Cost	Retail	Cost-to-retail ratio
Beginning inventory	29050	35000
Plus: Purchases	154950	390000
Freight-in	30500
Less: Purchase returns	(5500)	(30000)
Purchase discounts	(4000)
Plus: Net markups		15000
		410000
Less: Net markdowns		(30000)
Goods available for sale	205000	380000
Cost-to-retail percentage = 205000/410000			50%
Less: Net sales (341000-5000)		(336000)
Employee discounts		(4000)
Estimated ending inventory at retail		40000
Estimated ending inventory at cost	20000

Cost-to-retail percentage = 205000/410000 = 50%

Estimated ending inventory at cost = Estimated ending inventory at retail* Cost-to-retail percentage = 40000*50% = 20000

Part 2

	Cost	Retail	Cost-to-retail ratio
Beginning inventory	29050	35000
Plus: Purchases	154950	390000
Freight-in	30500
Less: Purchase returns	(5500)	(30000)
Purchase discounts	(4000)
Plus: Net markups		15000
Less: Net markdowns		(30000)
Goods available for sale (excluding beg. inventory)	175950	345000
Goods available for sale (including beg. inventory)	205000	380000
Cost-to-retail percentage = 175950/345000			51%
Less: Net sales (341000-5000)		(336000)
Employee discounts		(4000)
Estimated ending inventory at retail		40000
Estimated ending inventory at cost (35000*83%)+((40000-35000)*51%)	31600

Cost-to-retail percentage = 175950/345000 = 51%

Estimated ending inventory at cost = Estimated ending inventory at retail* Cost-to-retail percentage = 40000*50% = 20000

Part 3

Ending Inventory at Base Year Retail Prices = 46800/1.04 = 45000

Estimated ending inventory at cost = (40000*1*50%)+((45000-40000)*1.04*80%) = $24160

Part 4

Ending Inventory at Base Year Retail Prices = 40660/1.07 = 38000

Estimated ending inventory at cost = 38000*1*79% = $30020