
Concept explainers
1.
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 and cost of goods sold in 2016 using dollar-value LIFO retail method.
1.

Explanation of Solution
Calculate the amount of estimated ending inventory and cost of goods sold at retail.
Details | Cost ($) | Retail ($) |
Beginning inventory | 90,000 | 150,000 |
Add: Net purchase | 478,000 | 730,000 |
Freight-in | 6,960 | |
Net markups | 8,500 | |
Less: Net markdowns | (4,000) | |
Purchase returns | (2,500) | (3,500) |
Goods available for sale – Excluding beginning inventory | 482,460 | 731,000 |
Goods available for sale – Including beginning inventory | 572,460 | 881,000 |
Less: Normal spoilage | 0 | (5,000) |
Net sales | (664,000) | |
Employees discounts | (6,000) | |
Estimated ending inventory at current year retail prices | 206,000 | |
Estimated ending inventory at cost (Refer Table 2) | (123,990) | |
Estimated Cost of Goods Sold | 448,470 |
Table (1)
Working Notes:
Calculate base layer cost-to retail percentage.
Calculate current year cost-to retail percentage.
Calculate the amount of estimated ending inventory at cost.
Ending inventory at dollar-value LIFO retail cost | ||||
Ending inventory at year-end retail prices ($) | Ending inventory at base year retail prices ($) | Inventory layers at base year retail prices ($) | Inventory layers converted to cost ($) | |
206,000 | 200,000 | 150,000 (Base) | 90,000 | |
50,000 (2016) | 33,990 | |||
Total ending inventory at dollar-value LIFO retail cost | 123,990 |
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 converted to cost (Base).
Calculate the amount of inventory layers converted to cost (2016).
To Estimate: the ending inventory and cost of goods sold in 2017 using dollar-value LIFO retail method.

Explanation of Solution
Calculate the amount of estimated ending inventory and cost of goods sold at retail.
Details | Cost ($) | Retail ($) |
Beginning inventory | 123,990 | 206,000 |
Add: Net purchase | 511,000 | 760,000 |
Freight-in | 8,000 | |
Net markups | 10,000 | |
Less: Net markdowns | (6,000) | |
Purchase returns | (2,200) | (4,000) |
Goods available for sale – Excluding beginning inventory | 516,800 | 760,000 |
Goods available for sale – Including beginning inventory | 640,790 | 966,000 |
Less: Normal spoilage | 0 | (6,600) |
Net sales | (697,500) | |
Employees discounts | (7,500) | |
Estimated ending inventory at current year retail prices | 254,400 | |
Estimated ending inventory at cost (Refer Table 4) | (152,822) | |
Estimated Cost of Goods Sold | 487,968 |
Table (3)
Working Notes:
Calculate base layer cost-to retail percentage.
Calculate 2016 year cost-to retail percentage.
Calculate current year cost-to retail percentage.
Calculate the amount of estimated ending inventory at cost.
Ending inventory at dollar-value LIFO retail cost | ||||
Ending inventory at year-end retail prices ($) | Ending inventory at base year retail prices ($) | Inventory layers at base year retail prices ($) | Inventory layers converted to cost ($) | |
254,400 | 240,000 | 150,000 (Base) | 90,000 | |
50,000 (2016) | 33,990 | |||
40,000 (2017) | 28,832 | |||
Total ending inventory at dollar-value LIFO retail cost | 152,822 |
Table (4)
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 converted to cost (Base).
Calculate the amount of inventory layers converted to cost (2016).
Calculate the amount of inventory layers converted to cost (2017).
2.
Average cost
It is amethod of determining the cost-to retail percentage for all the goods available for sale.
To Calculate: The amount of ending inventory and cost of goods sold.
2.

Explanation of Solution
The following table shows the ending inventory and cost of goods sold.
Details | Cost ($) | Retail ($) |
Beginning inventory | 90,000 | 150,000 |
Add: Net purchase | 478,000 | 730,000 |
Freight-in | 6,960 | |
Net markups | 8,500 | |
Less: Purchase Returns | (2,500) | (3,500) |
Net markdowns | (4,000) | |
Goods available for sale | 572,460 | 881,000 |
Less: Normal spoilage | (5,000) | |
Net sales | (664,000) | |
Employees discounts | (6,000) | |
Estimated ending inventory at retail | 206,000 | |
Estimated ending inventory at cost(1) | (133,859) | |
Estimated Cost of Goods Sold | 438,601 |
Table (5)
Working Note:
Calculate cost-to-retail percentage.
Calculate the amount of estimated ending inventory at cost.
3.
Conventional Retail Method
Conventional retail method refers to the estimation of the lower of average cost or market by eliminating the markdowns from the calculation of the cost-to-retail percentage.
In this case, the cost-to-retail percentage will be determined by dividing the goods available for sale at cost by the goods available for at retail (excluding markdowns). Thus, the conventional retail method will always result in lower estimation of ending inventory when the markdowns exist.
To Calculate: The amount of ending inventory and cost of goods sold.
3.

Explanation of Solution
The following table shows the ending inventory and cost of goods sold.
Details | Cost ($) | Retail ($) |
Beginning inventory | 90,000 | 150,000 |
Add: Net purchase | 478,000 | 730,000 |
Freight-in | 6,960 | |
Net markups | 8,500 | |
Less: Purchase Returns | (2,500) | (3,500) |
Net markdowns | (4,000) | |
Goods available for sale | 572,460 | 881,000 |
Less: Normal spoilage | (5,000) | |
Net sales | (664,000) | |
Employees discounts | (6,000) | |
Estimated ending inventory at retail | 206,000 | |
Estimated ending inventory at cost(2) | (133,241) | |
Estimated Cost of Goods Sold | 439,219 |
Table (6)
Working Note:
Calculate cost-to-retail percentage.
Calculate the amount of estimated ending inventory at cost.
Want to see more full solutions like this?
Chapter 9 Solutions
INTERMEDIATE ACCOUNTING
- Give correct answer this financial accounting question not use aiarrow_forwardGet accurate solution of this general accounting questionarrow_forwardEXCELSIOR COMMUNITY COLLEGE HOSPITALITY MANAGEMENT ACCOUNING MID-SEMESTER ACCT4301 UNIT 2 Section A of this assessment is to be done on Canvas Section B Answer all questions in this section - round off your answers to two decimal places Instructions: Responses should be written on paper. Take a CLEAR, WELL-LIGHTED picture of each page, the upload to Canvas. 1. The following information relates to Moonlight Hotel 2018 2019 $ change % change Net sales 1,818,500 1,750,000 Cost of Goods Sold 1,005,500 996,000 Operating profit 813,000 754,000 Selling and administrative expenses 506,000 479,000 Income from operations 307,000 275,000 Other expenses and losses Interest expenses 18,000 19,000 Income before income taxes 289,000 256,000 Income tax expenses 86,700 77,000 Net Income 202,300 179,000 Required: i. Use the above information to prepare the comparative analysis income statement.arrow_forward
- Complete the table below with the infomation given - FlagStaff Ltd has a defined benefit pension plan for its employees. The company is considering introducing a defined benefit contribution plan, which will be available to all incoming staff. Although the defined benefit plan is now closed to new staff, the fund is active for all employees who have tenure with the company. In 2020, the following actuarial report was received for the defined benefit plan: 2020/$ Present value of the defined benefit obligation 31 December 2019 18 000 000 Past Service Cost 4 000 000 Net interest ? Current service cost 600 000 Benefits paid 2 000 000 Actuarial gain/loss on DBO ? Present value of the defined benefit obligation 31 December 2020 21 000 000 Fair value of plan assets at 31 December 2019 17 000 000 Return on plan assets ? Contributions paid to the plan during the year 1 500 000 Benefits paid by the plan during the year 2 000 000 Fair value of plan assets at 31 December…arrow_forwardAnswer the following requirement of this general accounting questionarrow_forwardCalculate the return on equity of this financial accounting questionarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





