Question

On January 1, 2021, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2021 and 2022 are as follows: 2022 2021 Retail Retail Cost Cost $ 90,000 $150,000 478,000 2,500 6,960 Beginning inventory Purchases $511,000 $760,000 2,200 ৪, ০০০ 730,000 3,500 4,000 Purchase returns Freight-in Net markups Net markdowns 10,000 6,000 8,500 4,000 650,000 14,000 5,000 680,000 Net sales to customers 17,500 6,600 Sales to employees (net of 30% di Normal spoilage Price Index January 1, 2021 December 31, 2021 discount) 1.00 1.03 1.06 December 31, 2022 Required: 1. Estimate the 2021 and 2022 ending inventory and cost of goods sold using the dollar-value LIFO retail method. 2022 2021 Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Answer 1

ANSWER

Dollar-Value LIFO retail In LIFO retail method, the closing inventory includes beginning inventory plus current year's layer or current period's layer. To estimate LIFO from retail prices, the dollar-value LIFO retail method syndicates the dollar- value LIFO and LIFO retail method when the price level has changed.

Step 1: Calculate the amount of estimated ending inventory at retail. Details Cost ($) Retail (S) Beginning inventory 90,000 150.000 Add: Net purchase 478,000 730,000 Less: Purchase return | (2,500 (3,500) Add: Freight-in 6,960 Net markups 8,500 Less: Net markdowns (4,000 Goods available for sale - Excluding beginning 482,460 731.000 inventory Goods available for sale - Including beginning 572,460 | 881,000 inventory Less: Normal spoilage (5,000) Net sales (664,000 Employee discounts (6,000) Estimated ending inventory at current year retail 206,000 prices

Working notes: Calculate the amount of sales: Net sales to customers Amount of sales = (+ Sales to employee = ($650,000+ $14,000) = $664,000

Calculate the amount of employee discounts: Sales to employee Employee discount = Selling price discount (-Sales to employee $14,000 -- $14,000 70% = $20,000 - $14,000 = $6,000

Step 2: Calculate base layer cost-to retail percentage. Base layer cost-tol Beginning inventory at cost x100 retail percentage Beginning inventory at retail $90,000 ($150,000 *100) = 60%

STEP-3

Calculate current year layer 2021 cost to retail percentage

Goods available for sale at cost (Excluding beginning inventory) 4x100 Goods available for sale at retail ((Excluding beginning inventory) ($482,460 x100 $731,000*100 = 66%

Step 4: Calculate the amount of estimated ending inventory at cost.

Ending inventory at dollar-value LIFO retail cost Step 1 Step 2 Step 3 Ending inventory at Ending Inventory layers | Inventory year-end retail inventory at at base year layers prices ($) base year retail retail prices ($) converted to prices ($) cost ($) 206.000 200,000 150.000 (Base) 90,000 50,000 (2018) 33,990 Total ending inventory at dollar-value LIFO retail cost 123.990 Working notes: Calculate the amount of ending inventory at base year retail prices: Ending inventory Estimated ending inventory at retail at base year retail prices Retail price index $206,000 1.03 = $200,000

Calculate the amount of inventory layers at base year retail prices: Inventory layers at base year retail prices = Beginning inventory at retail =$150,000

3

Calculate the amount of inventory layers at current year retail price(2021)

Ending inventory at base year retail prices - Beginning inventory at retail) = $200,000 - $150,000 = $50,000

Calculate the amount of inventory layers converted to cost (Base): Beginning inventory at retail * Inventory layers Y=Base price index x converted to cost Base layer cost-to retail percentage) = ($150,000 x 1.00 x 60%) = $90,000

5

Calculate the amount of inventory layers converted to cost(2021)

Inventory layers converted to cost Inventory layers at current year retail prices x Retail price index x Current year cost-to retail percentage =($50,000x1.03 x 66%) = $33,990

Step 5: Calculate the amount of estimated cost of goods sold. Details Goods available for sale - Including beginning inventory | Less: Estimated ending inventory at cost Estimated cost of goods sold Cost (S) 572,460 (123,990) 448,470

Calculate the value of inventory by using dollar-value LIFO retail method for 2022

Step 1: Calculate the amount of estimated ending inventory at retail.

Cost ($) 123,990 511,000 (2,200 8,000 Retail ($) 206,000 760,000 (4,000) 10,000 (6,000) 760,000 Details | Beginning inventory Add: Net purchase Less: Purchase return Add: Freight-in Net markups Less: Net markdowns Goods available for sale - Excluding beginning inventory Goods available for sale - Including beginning inventory Less: Normal spoilage Net sales Employee discounts Estimated ending inventory at current year retail prices 516,800 640,790 966,000 (6,600) (697,500) (7,500) 254,400

Working notes: Calculate the amount of sales: Net sales to customers Amount of sales = + Sales to employee =($680,000+ $17,500) = $697,500

Calculate the amount of employee discounts: Sales to employee Employee discount = Selling price discount (-Sales to employee $17,500 -$17.500 rsd 70% = $25,000 - $17,500 = $7,500

Step 2: Calculate base layer cost-to retail percentage. Base layer cost-to Beginning inventory at cost retail percentage Beginning inventory at retail $90,000 100 $150,000 = 60% ,*100 x 100

STEP-3

Calculate current year layer(2021)cost-to retail percentage

Goods available for sale at cost (Excluding beginning inventory)], Goods available for sale at retail (Excluding beginning inventory)] _$482,460 x100 $731,000 = 66%

STEP-4

Calculate current year layer (2022) cost-to retail percentage

Goods available for sale at cost (Excluding beginning inventory) Ex100 Goods available for sale at retail ((Excluding beginning inventory) $516,800 x100 $760,000 = 68%

step-5 Calculate the amount of estimated ending inventory at cost Ending inventory at dollars - valve Lifo retail cost stepa3 Ending inventory at Year end retail Poices ($) slep-l | Ending inventory at base year retail prices (1) step-2 inventory layers at base year retail polles (1) inventory layens converted to cost ) 2 54,400 | 240,000 150,000 (Base) 50000(202) 40000 (2022)/ 90,000 33,990 28,832 152,822 Total Ending - value inventory at dollar LIFO retail last

Working notes: Calculate the amount of ending inventory at base year retail prices:

(2022)

Estimated ending inventory at retail Retail price index $254,400 1.06 ) = $240,000

Calculate the amount of inventory layers at base year retail prices: Inventory layers at = Beginning inventory at retail base year retail prices =$150,000

Calculate the amount of inventory layers at current year retail prices:

(2021)

Ending inventory at base year retail prices - Beginning inventory at retail) = $200,000-$150,000 = $50,000

inventory 4. calculate layers at the amount of aussent year Retail prices :- ending Imantory out base Yeave detail polle C20227– (-) Begining inventory at retail (2021) - inventory layeos at cursent year retail prices (2021) $ 240,000- $ 150,000 - $50,000 = $40,000

Calculate the amount of inventory layers converted to cost (Base): Inventory layers converted to cost Beginning inventory at retail Base price index x Base layer cost-to retail percentage =($150,000 x 1.00 x 60%) = $90,000

6

Calculate the amount of inventory layers converted to cost(2021)

Inventory layers converted to cost Inventory layers at current year retail prices x Retail price index x Current year cost-to retail percentage = ($50,000x1.03 x 66%) = $33,990

7 . warte the amount of inventory layers converted to Cast (2022) Inventory layers at cursent year retail prices (2022) X Retail price index (2022) x current year cost-to-retail percentage (2022) - $ 40,000 X 1.06X68% $ 26,832 * 00 р о т Enter и K J Shift Ctrl M N Alt Gr

Step 6: Calculate the amount of estimated cost of goods sold. Cost ($) 640,790 Details Goods available for sale - Including beginning inventory Less: Estimated ending inventory at cost Estimated cost of goods sold (152,822) 487,968

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