Chapter 9, Problem 9.20E

1.

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 Determine: the cost-to-retail percentage for the inventory on hand at 1/1/2018.

Explanation of Solution

Determine the cost-to-retail percentage for the inventory on hand at 1/1/2018.

$\begin{array}{c}\begin{array}{l}\text{Cost-to}\\ \text{ retail percentage}\end{array}\}\text{ = }\left(\frac{\text{Beginning inventory at cost}}{\text{Beginning inventory at retail}}\times 100\right)\\ =\left(\frac{\$15,000}{\$18,750}\times 100\right)\\ =80\%\end{array}$ (1)

Conclusion

Therefore, the cost-to-retail percentage for the inventory on hand at 1/1/2018 is 80%.

2.

To determine

To Calculate: the inventory value at the end of 2018 and 2019 using the dollar-value LIFO retail method.

Explanation of Solution

Calculate the inventory value at the end of 2018 and 2019 using the dollar-value LIFO retail method.

Ending inventory at dollar-value LIFO retail cost (2018)
	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 ($)	Inventory layers converted to cost ($)
25,000	20,000 (1)	18,750 (Base)(5)	15,000 (8)
		1,250 (2018)(7)	1,281(10)
Total ending inventory at dollar-value LIFO retail cost			$16,281

Table (1)

Ending inventory at dollar-value LIFO retail cost (2019)
	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 ($)	Inventory layers converted to cost ($)
28,600	22,000 (2)	18,750 (Base)(3)	15,000 (6)
		1,250 (2018)(4)	1,281(7)
		2,000 (2019) (5)	2,210 (8)
Total ending inventory at dollar-value LIFO retail cost			$18,491

Table (2)

Working notes:

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

$\begin{array}{c}\begin{array}{l}\text{Ending inventory }\\ \text{at base year retail prices (2019) }\end{array}\}\text{= }\left(\frac{\text{Estimated ending inventory at retail}}{\text{Retail price index}}\right)\\ =\left(\frac{\$28,600}{1.30}\right)\\ =\$22,000\end{array}$ (2)

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

$\begin{array}{c}\begin{array}{l}\text{Inventory layers at}\\ \text{ base year retail prices }\end{array}\}\text{= Beginning inventory at retail}\\ \text{=\$18,750 (Base)}\end{array}$ (3)

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

$\begin{array}{c}\begin{array}{l}\text{Inventory layers at}\\ \text{ current year retail prices (2018) }\end{array}\}\text{= }\left(\begin{array}{l}\text{Ending inventory at base}\\ \text{ year retail prices (2018)}\\ -\text{Beginning inventory at retail (2018)}\end{array}\right)\\ =\$20,000-\$18,750\\ =\$1,250\end{array}$ (4)

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

$\begin{array}{c}\begin{array}{l}\text{Inventory layers at}\\ \text{ current year retail prices (2019) }\end{array}\}\text{= }\left(\begin{array}{l}\text{Ending inventory at base }\\ \text{year retail prices (2019)}-\\ -\text{Beginning inventory at retail (2018)}-\\ \text{Inventory layers at current year}\\ \text{ retail prices (2018)}\end{array}\right)\\ =\$22,000-\$18,750-\$1,250\\ =\$2,000\end{array}$ (5)

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

$\begin{array}{c}\text{Inventory layers converted to cost =}\left(\begin{array}{l}\text{Beginning inventory at retail (Base)}\times \\ \text{Base price index}\times \\ \text{Base layer cost-to retail percentage}\end{array}\right)\\ =\left(\$18,750\times 1.00\times 80\%\right)\\ =\$15,000\\ \end{array}$ (6)

Calculate the amount of inventory layers converted to cost (2018).

$\begin{array}{c}\begin{array}{l}\text{Inventory layers }\\ \text{converted to cost (2018) }\end{array}\}\text{=}\left(\begin{array}{l}\text{Inventory layers at current year retail}\\ \text{ prices (2018)}\times \\ \text{Retail price index (2018)}\times \\ \text{Current year cost-to retail percentage (2018)}\end{array}\right)\\ =\left(\$1,250\times 1.25\times 82\%\right)\\ =\$1,281\end{array}$ (7)

Calculate the amount of inventory layers converted to cost (2019).

$\begin{array}{c}\begin{array}{l}\text{Inventory layers }\\ \text{converted to cost (2019)}\end{array}\}\text{ =}\left(\begin{array}{l}\left(\begin{array}{l}\text{Inventory layers at current }\\ \text{year retail prices }\left(\text{2019}\right)\end{array}\right)\times \\ \text{Retail price index (2019)}\times \\ \text{Current year cost-to retail percentage (2019)}\end{array}\right)\\ =\left(\$2,000\times 1.30\times 85\%\right)\\ =\$2,210\end{array}$ (8)

Conclusion

Therefore, the inventory value at the end of 2018 and 2019 using the dollar-value LIFO retail method are $16,281 and $18,491.