Question

lance-hefner specialty shoppes decided to use the dollar-value lifo retail method to value its inventory. accounting records provide the following information: cost retail merchandise inventory, january 1, 2024 $ 300,000 $ 400,000 net purchases 521,400 655,000 net markups 22,000 net markdowns 17,000 net sales 510,000 related retail price indexes are as follows: january 1, 2024 1.00 december 31, 2024 1.10 required: determine ending inventory and cost of goods sold using the information provided.

Answer 1

Using the dollar-value LIFO retail method, Lance-Hefner Specialty Shoppes' estimated ending inventory is $375,000, and the cost of goods sold is $446,400 for the year 2024.

Step-by-step explanation:

Lance-Hefner Specialty Shoppes has chosen the dollar-value LIFO retail method for inventory valuation. To calculate the ending inventory and cost of goods sold (COGS), we must adjust the cost and retail columns to reflect price changes over the year using the provided retail price indexes.

At the beginning of the year, the inventory cost is $300,000, and the retail value is $400,000, with an index number of 1.00. By the end of the year, the index number has risen to 1.10, indicating inflation. Adjustments for net markups and markdowns are applied to the retail column; net markups increase the retail value by $22,000, and net markdowns decrease it by $17,000. The adjusted retail value at the end of the period is calculated by adding net purchases to the retail value at the start of the year, plus net markups, minus net markdowns, and then subtracting net sales. Finally, to value the ending inventory using the dollar-value LIFO method, we apply the end-of-year index to the current cost-to-retail ratio.

Let's calculate:

• 
  
• Adjusted Retail Value at the beginning: $400,000
• 
  
• Plus Net Purchases: $655,000
• 
  
• Plus Net Markups: $22,000
• 
  
• Minus Net Markdowns: $17,000
• 
  
• Minus Net Sales: $510,000
• 
  
• Adjusted Ending Retail Value: $550,000
• 
  
• End-of-Year Index: 1.10
• 
  
• Cost-to-Retail Ratio at the Beginning: $300,000 / $400,000 = 0.75
• 
  
• Estimated Cost of the Ending Inventory: Adjusted Ending Retail Value x Cost-to-Retail Ratio / End-of-Year Index
• 
  
• Estimated Cost of the Ending Inventory: $550,000 x 0.75 / 1.10 = $375,000
• 
  
• Cost of Goods Sold: Beginning Inventory + Net Purchases - Estimated Cost of the Ending Inventory
• 
  
• Cost of Goods Sold: $300,000 + $521,400 - $375,000 = $446,400

Therefore, the estimated ending inventory using the dollar-value LIFO retail method is $375,000, and the cost of goods sold is $446,400.

Answer 2

Lance-Hefner Specialty Shoppes' ending inventory at cost is $401,818.18, and their cost of goods sold is $420,581.82.

To Calculate ending inventory at retail:

Ending inventory at retail = Beginning inventory at retail + Net purchases at retail + Net markups - Net markdowns - Net sales

Ending inventory at retail = $400,000 + $655,000 + $22,000 - $17,000 - $510,000

Ending inventory at retail = $442,000

To Calculate ending inventory at cost using the dollar-value LIFO retail method

Ending inventory at cost = (Ending inventory at retail / Retail price index (ending)) * Retail price index (beginning)

Ending inventory at cost = ($442,000 / 1.10) * 1.00

Ending inventory at cost = $401,818.18

To Calculate cost of goods sold

Cost of goods sold = Beginning inventory cost + Net purchases cost - Ending inventory cost

Cost of goods sold = $300,000 + $521,400 - $401,818.18

Cost of goods sold = $420,581.82

Therefore, Lance-Hefner Specialty Shoppes' ending inventory at cost is $401,818.18, and their cost of goods sold is $420,581.82.