Question

Johnson Corporation had beginning imventory of $20,000 at cost and $35,000 at retail. During the year, it made net purchases of $180,000 at cost and $322,000 at retall. Johnson made sales of $300,000. Assuming a price index of 100 at the beginning of the year and 110 at the end of the year, compute Johnson's ending inventory at cost using the dollar-value Lifo retail method. Round cost index computations to four decimal places, other intermediate calculations to two decimal piaces and the final answer to the nearest whole doliar. Feedtach 7 Cieck My woik When prices change during a period, a company can combine the principles of the retail Lifo method with the dollar-yalue LIFO method to eliminate the effects of this price change. This combination is called the dollar-value LIFO retall method.

Answer 1

To find Johnson Corporation's ending inventory at cost using the dollar-value LIFO retail method, calculate the initial cost-to-retail ratio, adjust the ending inventory at retail for price changes, and apply the initial cost-to-retail ratio to the adjusted inventory, resulting in an ending inventory at cost of $29,615.

Step-by-step explanation:

To calculate Johnson Corporation's ending inventory at cost using the dollar-value LIFO retail method, we first determine the price index at the end of the year, which is 110, with the beginning of the year being 100. This gives us a cost index of 110/100 = 1.1. We apply this index to adjust the cost-to-retail ratio.

Next, we calculate the cost-to-retail ratio at the beginning of the year: $20,000 cost / $35,000 retail = 0.5714 (rounded to four decimal places). The ending inventory at retail before price index adjustment is the beginning inventory plus net purchases minus sales: $35,000 + $322,000 - $300,000 = $57,000.

Then, we adjust the ending inventory at retail for price changes: $57,000 / 1.1 = $51,818.18. Applying the initial cost-to-retail ratio to the adjusted ending inventory at retail gives the ending inventory at cost: $51,818.18 * 0.5714 = $29,615.38 (rounded to the nearest whole dollar).

Answer 2

The dollar-value LIFO retail method involves adjusting the retail value of ending inventory using the price index to account for inflation and then applying the cost-to-retail ratio to determine the ending inventory at cost.

Step-by-step explanation:

The question involves calculating the ending inventory for Johnson Corporation using the dollar-value LIFO retail method. This method incorporates changes in the price index to account for inflation and helps in measuring the inventory at a stable value despite price fluctuations. To compute Johnson's ending inventory at cost, first, calculate the cost-to-retail ratio at the beginning of the year. Then, adjust the ending inventory at retail by the change in the price index to find the layered inventory at retail. Finally, apply the beginning cost-to-retail ratio to the adjusted ending inventory to find the ending inventory at cost.

Example Calculation:

1. Cost-to-retail ratio at the beginning of the year = $20,000 (beginning inventory at cost) / $35,000 (beginning inventory at retail)

2. Ending inventory at retail before adjustment = Beginning inventory at retail + Purchases at retail - Sales

3. Adjust the ending inventory at retail by using the price index: Adjusted ending inventory at retail = (Ending inventory at retail before adjustment) / (Price index at the end of the year / Price index at the beginning of the year)

4. Ending inventory at cost = Adjusted ending inventory at retail x Beginning cost-to-retail ratio