Question

As of January 1, 2017, Aristotle Inc. adopted the retail method of accounting for its merchandise inventory.

To prepare the store’s financial statements at June 30, 2017, you obtain the following data.
Cost Selling Price
Inventory, January 1 $ 30,000 $ 43,000
Markdowns 10,500
Markups 9,200
Markdown cancellations 6,500
Markup cancellations 3,200
Purchases 104,800 155,000
Sales revenue 154,000
Purchase returns 2,800 4,000
Sales returns and allowances 8,000
Instructions
(a) Prepare a schedule to compute Aristotle’s June 30, 2017, inventory under the conventional retail method of accounting for inventories.
(b) Without prejudice to your solution to part (a), assume that you computed the June 30, 2017, inventory to be $59,400 at retail and the ratio of cost to retail to be 70%. The general price level has increased from 100 at January 1, 2017, to 108 at June 30, 2017. Prepare a schedule to compute the June 30, 2017, inventory at the June 30 price level under the dollarvalue LIFO retail method.

Answer 1

Answer is explained in the explanation section below.

Step-by-step explanation:

Note: I have just solved the part a of this question here. And Part b is attached in the attachment below. Please refer to the attachment for part b of this question.

Solution:

Cost Retail

Inventory as on Jan-1 30,000 43000

Purchases 104,800 155,000

Purchases Return -2800 -4000

Add: Net Markups

Markups 9200

Markup Cancellations -3200

Total Amount 132000 200000

Less: Net Markups

Markdowns 10,500

Markdowns Cancellation -6500 4000

SP of goods Available 196000

Sales Revenue 154000

Sales Returns And Allowances -8000 146000

Ending inventory at retail 50000

Calculations:

Ratio: Cost to Retail = 132000/200000 = 0.66

Inventory at lower of market = 0.66 x 50000

Inventory at lower of market = 33000