Question

LIFO retail inventory method, stable prices.

Potter Variety Store uses the LIFO retail inventory method. Information relating to the computation of the inventory at December 31, 2018, follows:
Cost Retail
Inventory, January 1, 2018 $146,000 $220,000
Purchases 480,000 700,000
Freight-in 80,000
Sales 750,000
Net markups 160,000
Net markdowns 60,000

Assuming that there was no change in the price index during the year, compute the inventory at December 31, 2018, using the LIFO retail inventory method.

Answer 1

The correct answer is $181,000.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Cost Retail

Beginning inventory $146,000 $220,000

Purchases $480,000 $700,000

Freight-in $80,000

Net markups $160,000

Net markdowns $(60,000)

So, first we calculate Total cost with excluding beginning inventory and after including inventory, then

Total (exclu. begin. inventory) $560,000 70% $800,000

Total (inclu. begin. inventory) $706,000 $1,020,000

Now, Less sales from the amount, we get

Sales ($750,000)

So, Ending inventory $270,000

So, Ending Inventory by LIFO can be calculated as follows:

Ending inventory $ 270,000

Beginning inventory $146,000 (220,000)

Let, Increment = $50,000

So, Increment cost = ($50,000 × 70%) = $35,000

Ending inventory can be calculated by using following formula:

Ending inventory = Beginning inventory + Increment cost

By putting the value, we get,

Ending inventory = $146,000 + $35,000

= $181,000

Hence, Ending inventory cost by LIFO retail inventory method is $181,000.