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Chapter 9: Question E9-26 (page 481)

You assemble the following information for Seneca Department Store, which computes its inventory under the dollar-value LIFO method. Cost Retail Inventory on January 1, 2017 \(216,000 \)300,000 Purchases 364,800 480,000 Increase in price level for year 9% Instructions Compute the cost of the inventory on December 31, 2017, assuming that the inventory at retail is (a) \(294,300 and (b) \)365,150.

Short Answer

Expert verified
  1. The cost of inventory equals $194,400.
  2. The cost of inventory equals $248,246.

Step by step solution

01

Calculation of ending inventory at base year retail prices

a. The cost of ending inventory at base year retail price is calculated as follows:

EndingInventoryatBaseYearRetailPrice=EndingInventoryatRetail100%+PercentageIncrease=$294,300100%+9%=$270,000

02

Calculation of the cost to retail ratio of beginning inventory

The cost-to-retail ratio of beginning inventory is calculated as follows:

CosttoRetailRatioofBeginningInventory=BeginningInventoryatCostBeginningInventoryatRetail=$216,000$300,000=72%

03

Calculation of the cost to retail ratio of total inventory excluding beginning inventory

The cost-to-retail ratio of total inventory excluding beginning inventory is calculated as follows:
Cost鈥�to鈥�RetailRatio=TotalInventoryExcludingBeginningInventoryatCostTotalInventoryExcludingBeginningInventoryatRetail=$364,800$480,000=76%

04

Calculation of ending inventory under dollar-value-LIFO retail method

  1. Ending inventory is calculated as follows:
Ending Inventory at Base Year Retail Prices


Layers at Base Year Retail Prices


Price Index (Percentage)

Cost-to-Retail (Percentage)

Ending Inventory at LIFO Cost

$270,000

2016

$270,000

x

100%

x

72%

=

$194,400

$194,400

05

Calculation of ending inventory at base year retail prices

The cost of ending inventory at base year retail price is calculated as follows:

EndingInventoryatBaseYearRetailPrice=EndingInventoryatRetail100%+PercentageIncrease=$365,150100%+9%=$335,000

06

Calculation of ending inventory under dollar-value-LIFO retail method

b. Ending inventory is calculated as follows:


Ending Inventory at Base Year Retail Prices
Layers at Base Year Retail Prices

Price Index (Percentage)

Cost-to-Retail (Percentage)

Ending Inventory at LIFO Cost

$335,000

2016

$270,000

x

100%

x

72%

=

$194,400

2017

65,000

x

109%

x

76%

=

53,846

$248,246

Thus, the value of inventory in (a) equals $194,400 and in (b) equals $248,246.

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