Question

Crane Company began operations late in 2019 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2019 and no markdowns during 2019, the ending inventory for 2019 was $13,202 under both the conventional retail method and the LIFO retail method. At the end of 2020, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2020. The following data are available for computations. Cost Retail $13,202 $20,700 Inventory, January 1, 2020 80,000 Sales revenue Net markups 9,900 Net markdowns 1,500 Purchases 56,000 75,200 Freight-in 1,684 Estimated theft 2,000 Compute the cost of the 2020 ending inventory under both: (a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to O decimal places, e.g. 28,987.) $ Ending inventory using the conventional retail method 15795 (b) The LIFO retail method. (Round ratios for computational purposes to O decimal places, e.g. 78% and final answers to O decimal places, e.g. 28,987.) $ Ending inventory at cost 15660 $ Ending inventory at retail 24300

Answer 1

1) Under Conventional retail method, ending inventory is calculated by excluding markdowns but including markups. So, O Conventional Method Cost Retail Beginning Inventory $13,202 $20,700 Purchases $56,000 $75,200 Freight In $1,684 Purchase Returns Purchase Discounts Net Markups $9,900 Abnormal Spoilage Total Inventories $70,886 $105,800 Net Markdowns -$1,500 Goods available for sale $70,886 $104,300 Less: Normal Spoilage Estimated theft -$2,000 Total available for sale $102,300 Net Sales to customers -$80,000 Estimated ending inventory at retail $22,300 $0

Retail $20,700 $75,200 Cost to retail % 69% ($57684 / $83600] x 100 [Goods available for sale at cost divided by Goods available at retail without beginning inventory] Beginning inventory Current period's layer Ending Inventory Cost $13,202 $1,104 $14,306 Retail $20,700 (Given] $1,600 (Ref: NOTE] $22,300 $9,900 LIFO Retail inventory method Cost Beginning Inventory $13,202 Purchases $56,000 Freight In $1,684 Purchase Returns Purchase Discounts Net Markups Abnormal Spoilage $70,886 Net Markdowns Goods available for sale $57,684 Goods available for sale $70,886 Normal Spoilage Estimated theft Total available for sale Net sales Estimated ending inventory at retail $105,800 NOTE: Current period's layer for Retail = $22300 - $20700 = $1600; Cost = $1600 x 69% = $1104. -$1,500 $83,600 (Without beginning inventory] $104,300 [With beginning inventory] $0 -$2,000 $102,300 ($104300 - $0 - $2000] -$80,000 $22,300 [Out of this, $20700 will be from beg. Inventory & balance $1600 from current year's layer]