Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Textbook Question
Chapter 8, Problem 11P

Dollar-Value LIFO Retail Intella Inc. adopted the dollar-value retail LIFO method on January 1, 2018. The following data apply to the 4 subsequent years:

Chapter 8, Problem 11P, Dollar-Value LIFO Retail Intella Inc. adopted the dollar-value retail LIFO method on January 1, , example  1

In addition, the following price indexes are available:

Chapter 8, Problem 11P, Dollar-Value LIFO Retail Intella Inc. adopted the dollar-value retail LIFO method on January 1, , example  2

Required:

Compute the inventory at the end of each of the 4 years. Round the cost-to-retail ratio to 3 decimal places.

Expert Solution & Answer
Check Mark
To determine

Calculate the cost of ending inventory for 2018, 2019, 2020, and 2021 years by using dollar-value LIFO retail method.

Explanation of Solution

Dollar-Value-LIFO: This method shows all the inventory figures at dollar price rather than units. Under this inventory method, the units that are purchased last are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.

Calculate the cost of ending inventory for 2018, 2019, 2020, and 2021 years by using dollar-value LIFO retail method:

For the year 2018:

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

I Incorporation
Ending Inventory Under DVL Retail Method
For the Year 2018
DetailsCost ($)Retail ($)
Beginning inventory40,00080,000
Add:  Net purchase85,500190,000
Goods available for sale – Excluding beginning inventory85,500190,000
Goods available for sale – Including beginning inventory125,500270,000
Less:  Net sales (200,000)
Estimated ending inventory at retail for 2018 $70,000

Table (1)

Step 2:  Calculate ending inventory at retail at base-year prices.

Ending inventory at retail at base-year prices }=[ Ending inventory at retail×(Price index on 1/1/18Price index on 31/12/18)]=[ $70,000×(100105)]=$66,667

Step 3: Calculate inventory change at retail at base year prices.

Inventory change at retail at base-year prices}(Ending inventory at retail at base-year pricesBeginning inventory at retail)=($66,667$80,000)=$13,333

Step 4: Calculate the change at retail at relevant current costs.

Change at retail at relevant current costs =[Inventory change at retail at base-year prices×(Price index on 1/1/18Price index on 1/1/18)]=[$13,333×(100100)]=$13,333

Step 5: Calculate the change at relevant current costs.

Change at relevant current costs =[Change at retail at relevant current costs××Cost-to-retail ratio]=[$13,333×.50]=$6,667

Step 6: Calculate ending inventory at cost.

Ending inventory at cost = (Beginning inventory for 2018 Change at relevant current costs)=[$40,000$6,667]=$33,333

Hence, the ending inventory at cost for 2018 is $33,333.

Working note 1:

Calculate cost-to-retail ratio.

Cost-to-retail ratio= (Beginning inventory for costBeginning inventory for retail)=($40,000$80,000)=.5

Working note 2:

Calculate cost-to-retail ratio.

Cost-to-retail ratio= (Goods available for sale at retail excluding beginning inventoryGoods available for sale at retail excluding beginning inventory)=($85,500$190,000)=.45

For the year 2019:

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

I Incorporation
Ending Inventory Under DVL Retail Method
For the Year 2019
DetailsCost ($)Retail ($)
Beginning inventory33,33370,000
Add:  Net purchase92,000230,000
Goods available for sale – Excluding beginning inventory92,000230,000
Goods available for sale – Including beginning inventory125,333300,000
Less:  Net sales (210,000)
Estimated ending inventory at retail for 2019 $90,000

Table (1)

Step 2:  Calculate ending inventory at retail at base-year prices.

Ending inventory at retail at base-year prices }=[ Ending inventory at retail×(Price index on 1/1/18Price index on 31/12/19)]=[ $90,000×(100110)]=$81,818

Step 3: Calculate inventory change at retail at base year prices.

Inventory change at retail at base-year prices}(Ending inventory at retail at base-year prices for 2019Ending inventory at retail at base-year prices for 2018)=($81,818$66,667)=$15,151

Step 4: Calculate the change at retail at relevant current costs.

Change at retail at relevant current costs =[Inventory change at retail at base-year prices×(Price index on 31/12/19Price index on 1/1/18)]=[$15,151×(110100)]=$16,666

Step 5: Calculate the change at relevant current costs.

Change at relevant current costs =[Change at retail at relevant current costs××Cost-to-retail ratio]=[16,666×.40]=$6,666

Step 6: Calculate ending inventory at cost.

Ending inventory at cost = (Beginning inventory for 2019 +Change at relevant current costs)=[$33,333+$6,666]=$39,999

Hence, the ending inventory at cost for 2019 is $39,999.

Working note 1:

Calculate cost-to-retail ratio.

Cost-to-retail ratio= (Goods available for sale at retail excluding beginning inventoryGoods available for sale at retail excluding beginning inventory)=($92,000$230,000)=.4

For the year 2020:

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

I Incorporation
Ending Inventory Under DVL Retail Method
For the Year 2020
DetailsCost ($)Retail ($)
Beginning inventory39,99990,000
Add:  Net purchase117,600280,000
Goods available for sale – Excluding beginning inventory117,600280,000
Goods available for sale – Including beginning inventory157,599370,000
Less:  Net sales (260,000)
Estimated ending inventory at retail for 2020 $110,000

Table (3)

Step 2:  Calculate ending inventory at retail at base-year prices.

Ending inventory at retail at base-year prices }=[ Ending inventory at retail×(Price index on 1/1/18Price index on 31/12/20)]=[ $110,000×(100120)]=$91,667

Step 3: Calculate inventory change at retail at base year prices.

Inventory change at retail at base-year prices}(Ending inventory at retail at base-year prices for 2020Ending inventory at retail at base-year prices for 2019)=($91,667$81,818)=$9,849

Step 4: Calculate the change at retail at relevant current costs.

Change at retail at relevant current costs =[Inventory change at retail at base-year prices×(Price index on 31/12/20Price index on 1/1/18)]=[$9,849×(120100)]=$11,818

Step 5: Calculate the change at relevant current costs.

Change at relevant current costs =[Change at retail at relevant current costs××Cost-to-retail ratio]=[11,819×.42]=$4,964

Step 6: Calculate ending inventory at cost.

Ending inventory at cost = (Beginning inventory for 2020 +Change at relevant current costs)=[$39,999+$4,964]=$44,963

Hence, the ending inventory at cost for 2020 is $44,963.

Working note 1:

Calculate cost-to-retail ratio.

Cost-to-retail ratio= (Goods available for sale at retail excluding beginning inventoryGoods available for sale at retail excluding beginning inventory)=($117,600$280,000)=.42

For the year 2021:

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

I Incorporation
Ending Inventory Under DVL Retail Method
For the Year 2021
DetailsCost ($)Retail ($)
Beginning inventory44,963110,000
Add:  Net purchase147,200320,000
Goods available for sale – Excluding beginning inventory147,200320,000
Goods available for sale – Including beginning inventory192,163430,000
Less:  Net sales (300,000)
Estimated ending inventory at retail for 2021 $130,000

Table (4)

Step 2:  Calculate ending inventory at retail at base-year prices.

Ending inventory at retail at base-year prices }=[ Ending inventory at retail×(Price index on 1/1/18Price index on 31/12/21)]=[ $130,000×(100125)]=$104,000

Step 3: Calculate inventory change at retail at base year prices.

Inventory change at retail at base-year prices}(Ending inventory at retail at base-year prices for 2021Ending inventory at retail at base-year prices for 2020)=($104,000$91,667)=$12,333

Step 4: Calculate the change at retail at relevant current costs.

Change at retail at relevant current costs =[Inventory change at retail at base-year prices×(Price index on 31/12/20Price index on 1/1/18)]=[$12,333×(125100)]=$15,416

Step 5: Calculate the change at relevant current costs.

Change at relevant current costs =[Change at retail at relevant current costs××Cost-to-retail ratio]=[15,416×.46]=$7,091

Step 6: Calculate ending inventory at cost.

Ending inventory at cost = (Beginning inventory for 2021 +Change at relevant current costs)=[$44,963+$7,091]=$52,054

Hence, the ending inventory at cost for 2021 is $52,054.

Working note 1:

Calculate cost-to-retail ratio.

Cost-to-retail ratio= (Goods available for sale at retail excluding beginning inventoryGoods available for sale at retail excluding beginning inventory)=($147,200$320,000)=.46

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Chapter 8 Solutions

Intermediate Accounting: Reporting And Analysis

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