INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 9, Problem 9.10BE
To determine

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.

To Estimate: the ending inventory in 2017 using dollar-value LIFO retail method.

Expert Solution & Answer
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Explanation of Solution

Calculate the amount of estimated ending inventory at retail.

Details Cost ($) Retail ($)
Beginning inventory 50,451 86,000
Add:  Net purchase 168,000 301,000
          Net markups   3,000
Less:  Net markdowns    (4,000)
Goods available for sale – Excluding beginning inventory 168,000 300,000
Goods available for sale – Including beginning inventory 218,451 386,000
Less:  Net sales   (280,000)
Estimated ending inventory at current year retail prices   106,000
Estimated ending inventory at cost (59,762)  
Estimated cost of goods sold 158,689  

Table (1)

Working notes:

Calculate base layer cost-to retail percentage.

Base layer cost-to retail percentage} = (Beginning inventory at costBeginning inventory at retail×100)=($40,800$68,000×100)=60% (1)

Calculate current year layer (2016) cost-to retail percentage.

Current year cost-to retail percentage (2016)} ={ [Goods available for sale at cost (Excluding beginning inventory)][Goods available for sale at retail(Excluding beginning inventory)]×100}=($155,440$268,000×100)=58% (2)

Calculate current year layer (2017) cost-to retail percentage.

Current year cost-to retail percentage (2017)} ={ [Goods available for sale at cost (Excluding beginning inventory)][Goods available for sale at retail(Excluding beginning inventory)]×100}=($168,000$300,000×100)=56% (3)

Calculate the amount of estimated ending inventory at cost.

Ending inventory at dollar-value LIFO retail cost  
Ending inventory at year-end retail prices ($) Step 1 Step 2 Step 3
Ending inventory at base year retail prices ($) Inventory layers at base year retail prices ($) Inventory layers converted to cost ($)

106,000

(Refer Table 1)

100,000(4) 68,000 (Base) (5) 40,800 (8)
  16,314 (2016) (6) 9,651(9)
  15,686 (2017) (7) 9,311(10)
Total ending inventory at dollar-value LIFO retail cost $59,762

Table (2)

Calculate the amount of ending inventory at base year retail prices.

Ending inventory at base year retail prices (2017) }(Estimated ending inventory at retailRetail price index)=($106,0001.06)=$100,000 (4)

Calculate the amount of inventory layers at base year retail prices.

Inventory layers at base year retail prices }= Beginning inventory at retail=$68,000 (Base) (5)

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

Inventory layers at current year retail prices (2016) }(Ending inventory at base year retail prices (2016)Beginning inventory at retail (2016))=$84,314$68,000=$16,314 (6)

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

Inventory layers at current year retail prices (2017) }(Ending inventory at base year retail prices (2017)Beginning inventory at retail (2016)Inventory layers at current year retail prices (2016))=$100,000$68,000$16,314=$15,686 (7)

Calculate the amount of inventory layers converted to cost (Base).

Inventory layers converted to cost =(Beginning inventory at retail (Base)× Base price index×Base layer cost-to retail percentage)=($68,000×1.00×60%)=$40,800 (8)

Calculate the amount of inventory layers converted to cost (2016).

Inventory layers converted to cost (2016) }=(Inventory layers at current year retail prices (2016)× Retail price index (2016)×Current year cost-to retail percentage (2016))=($16,314×1.02×58%)=$9,651 (9)

Calculate the amount of inventory layers converted to cost (2017).

Inventory layers converted to cost (2017)} =[(Inventory layers at current year retail prices (2017))× Retail price index (2017)×Current year cost-to retail percentage (2017)]=($15,686×1.06×56%)=$9,311 (10)

Conclusion

Therefore, the ending inventory in 2017 using dollar-value LIFO retail method is $59,762.

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Chapter 9 Solutions

INTERMEDIATE ACCOUNTING

Ch. 9 - Explain the LIFO retail inventory method.Ch. 9 - Discuss the treatment of freight-in, net markups,...Ch. 9 - Explain the difference between the retail...Ch. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Explain the accounting treatment of material...Ch. 9 - Prob. 9.17QCh. 9 - Identify any differences between U.S. GAAP and...Ch. 9 - (Based on Appendix 9) Define purchase commitments....Ch. 9 - (Based on Appendix 9) Explain how purchase...Ch. 9 - Lower of cost or net realizable value LO91 Ross...Ch. 9 - Lower of cost or net realizable value LO91 SLR...Ch. 9 - Prob. 9.3BECh. 9 - Gross profit method; solving for unknown LO92...Ch. 9 - Prob. 9.5BECh. 9 - Prob. 9.6BECh. 9 - Prob. 9.7BECh. 9 - Prob. 9.8BECh. 9 - Prob. 9.9BECh. 9 - Prob. 9.10BECh. 9 - Prob. 9.11BECh. 9 - Prob. 9.12BECh. 9 - Prob. 9.13BECh. 9 - Prob. 9.14BECh. 9 - Lower of cost or net realizable value LO91 Herman...Ch. 9 - Prob. 9.2ECh. 9 - Prob. 9.3ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Gross profit method LO92 Royal Gorge Company uses...Ch. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Prob. 9.12ECh. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - Prob. 9.19ECh. 9 - Prob. 9.20ECh. 9 - Prob. 9.21ECh. 9 - Prob. 9.22ECh. 9 - E9–23 Inventory errors • LO9–7 For each of the...Ch. 9 - Prob. 9.24ECh. 9 - Prob. 9.25ECh. 9 - Concepts; terminology LO91 through LO97 Listed...Ch. 9 - Prob. 9.27ECh. 9 - Prob. 9.28ECh. 9 - Prob. 1CPACh. 9 - Prob. 2CPACh. 9 - Prob. 3CPACh. 9 - Prob. 4CPACh. 9 - Prob. 5CPACh. 9 - Prob. 1CMACh. 9 - Prob. 2CMACh. 9 - Prob. 3CMACh. 9 - Prob. 9.1PCh. 9 - Prob. 9.2PCh. 9 - Prob. 9.3PCh. 9 - Prob. 9.4PCh. 9 - Prob. 9.5PCh. 9 - Prob. 9.6PCh. 9 - Prob. 9.7PCh. 9 - Prob. 9.8PCh. 9 - Prob. 9.9PCh. 9 - Prob. 9.10PCh. 9 - Prob. 9.11PCh. 9 - P9–12 Charge in methods • LO9–6 Rockwell...Ch. 9 - Prob. 9.13PCh. 9 - Prob. 9.14PCh. 9 - Prob. 9.15PCh. 9 - Prob. 9.16PCh. 9 - Judgment Case 9–1 Inventoriable costs: lower of...Ch. 9 - Integrating Case 9–3 Unit LIFO and lower of cost...Ch. 9 - Prob. 9.4BYPCh. 9 - Prob. 9.5BYPCh. 9 - Prob. 9.6BYPCh. 9 - Prob. 9.7BYPCh. 9 - Prob. 9.8BYPCh. 9 - Prob. 9.9BYPCh. 9 - Judgment Case 910 Inventory errors LO97 Some...Ch. 9 - Prob. 9.11BYPCh. 9 - Prob. 9.12BYPCh. 9 - Prob. 1AFKC
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