Dollar-value LIFO retail
• LO9–5
This exercise is a continuation of BE 9–11. During 2019, purchases at cost and retail were $168,000 and $301,000, respectively. Net markups, net markdowns, and net sales for the year were $3,000, $4,000, and $280,000, respectively. The retail price index at the end of 2019 was 1.06. Estimating ending inventory in 2019 using the dollar-value LIFO retail method.
Dollar-Value-LIFO: This method shows all the inventory figures at dollar price rather than units. Under this inventory method, the units that are purchased last, are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.
To Estimate: the ending inventory in 2019 using dollar-value LIFO retail method.
Explanation of Solution
Calculate the amount of estimated ending inventory at retail.
Details | Cost ($) | Retail ($) |
Beginning inventory | 50,451 | 86,000 |
Add: Net purchase | 168,000 | 301,000 |
Net markups | 3,000 | |
Less: Net markdowns | (4,000) | |
Goods available for sale – Excluding beginning inventory | 168,000 | 300,000 |
Goods available for sale – Including beginning inventory | 218,451 | 386,000 |
Less: Net sales | (280,000) | |
Estimated ending inventory at current year retail prices | 106,000 | |
Estimated ending inventory at cost | (59,762) | |
Estimated cost of goods sold | 158,689 |
Table (1)
Working notes:
Calculate base layer cost-to retail percentage.
Calculate current year layer (2018) cost-to retail percentage.
Calculate current year layer (2019) cost-to retail percentage.
Calculate the amount of estimated ending inventory at cost.
Ending inventory at dollar-value LIFO retail cost | ||||
Step 1 | Step 2 | Step 3 | ||
Ending inventory at year-end retail prices ($) | 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.
Calculate the amount of inventory layers at base year retail prices.
Calculate the amount of inventory layers at current year retail prices.
Calculate the amount of inventory layers at current year retail prices.
Calculate the amount of inventory layers converted to cost (Base).
Calculate the amount of inventory layers converted to cost (2018).
Calculate the amount of inventory layers converted to cost (2019).
Therefore, the ending inventory in 2019 using dollar-value LIFO retail method is $59,762.
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Chapter 9 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
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- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning