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 is explained in the explanation section below.

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

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