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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Dollar-Value LIFO Retail Wyatt Company adopts the dollar-value LIFO retail inventory method on January 1, 2019. The company’s records reveal that the inventory on January 1, 2019, had a cost of $75,000 and a retail value of $120,000. During 2019, the cost of purchases made was $110,000, and the retail value was $165,000. In addition, net markdowns were $6,000, net additional markups were $8,000, and sales were $147,000. The price index on January 1, 2019, was 100, and the index for 2019 was 110.

Required:

Compute the cost of inventory on December 31, 2019. Round the cost-to-retail ratio to 3 decimal places.

To determine

Calculate the cost of ending inventory using the dollar-value LIFO retail inventory method.

Explanation

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 using the dollar-value LIFO retail inventory method.

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

DetailsCost ($)Retail ($)
Beginning inventory75,000120,000
Add:  Net purchase110,000165,000
          Net additional markups 8,000
Less:  Net additional markdowns  0(6,000)
Goods available for sale – Excluding beginning inventory110,000167,000
Goods available for sale – Including beginning inventory185,000287,000
Less:  Net sales (147,000)
Estimated ending inventory at current year retail prices $140,000

Table (1)

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

(i)

Calculate retail price converted to base-year prices:

Retail price converted to base-year prices }=[ Ending inventory at retail×(Price index on 1/1/16Price index on 31/12/16)]=[$140,000×(100110)]=$127,273

(ii)

Calculate increase in retail inventory at base-year prices.

Increase in retail inventory at base-year prices }(Retail price converted to base-year priceBeginning inventory at retail)=($127,273$120,000)=$7,273

Step 3: Calculate ending inventory at retail

Ending inventory at retail consists of price index on January 1, 2019 and December 31, 2019:

(i)

Calculate ending inventory at retail consist of price index on January 1, 2019.

Ending inventory at retail consists of price index on January 1, 2019 }=[Beginning inventory at retail×(Price index on 1/1/19Price index on 1/1/19)]=[$120,000×(100100)]=$120,000

(ii)

Calculate ending inventory at retail consist of price index on December 31, 2019

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