Retail inventory method; various applications
Response to the following problem:
R a leigh Department Store converted from the conventional retail method to the LIFO retail method on January 1, 2014, and is now considering converting to the dollar-value LIFO retail inventory method. Management requested, during your examination of the financial statements for the year ended December 31, 2016, that you furnish a summary showing certain computations of inventory costs for the past three years. Available information follows:
a. The inventory at January 1, 2014, had a retail value of $45,000 and a cost of $27,500 based on the conventional retail method.
b. Transactions during 2014 were as follows:
|
Cost
|
Retail
|
|
Gross purchases
|
$282,000
|
$490,000
|
|
Purchase returns
|
6,500
|
10,000
|
|
Purchase discounts
|
5,000
|
|
|
Gross sales
|
|
492,000
|
|
Salts returns
|
|
5,000
|
|
Employee discounts
|
|
3,000
|
|
Freight-in
|
26,500
|
|
|
Not markups
|
|
25,000
|
|
Net markdowns
|
|
10,000
|
Sales to employees are recorded net of discounts.
c. The retail value of the December 31, 2015, inventory was $56,100, the cost-to-retail percentage for 2015 under the LIFO retail method was 62%, and the appropriate price index was 102% of the January 1, 2015, price level.
d. The retail value of the December 31, 2016, inventory was $48,300, the cost-to-retail percentage for 2016 under the LIFO retail method was 61%, and the appropriate price index was 105% of the January 1, 2015, price level.
Required:
1. Prepare a schedule showing the computation of the cost of inventory at December 31, 2014, based on the conventional retail method.
2. Prepare a similar schedule as in requirement 1 based on the LIFO retail method.
3. Same requirement as (1) for December 31, 2015 and 2016, based on the dollar-value LIFO retail method.