Question

Exercise 9-26

You assemble the following information for Novak Department Store, which computes its inventory under the dollar-value LIFO method. Cost Retail Inventory on January 1, 2017 $211,935 $298,500 Purchases 360,232 486,800 Increase in price level for year 9% Compute the cost of the inventory on December 31, 2017, assuming that the inventory at retail is (a) $295,300 and (b) $361,335. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.)

(a) Cost of the inventory on December 31, 2017 $Entry field with incorrect answer

(b) Cost of the inventory on December 31, 2017

Answer 1

• All working forms part of the answer
• Working

	Cost	Retail	Ratio: Cost to Retail
Beginning Inventory	$211,935	$298,500	71.00%
Purchases	$360,232	$486,800	74.00%

• Requirement ‘a’

Inventory at retail = $ 295,300
Inventory at base = $ 295,300 / 1.09 = $ 270,917
This is less than beginning inventory at Retail $ 298,500
Inventory at cost = $ 270,917 x 71% = $ 192,351
Answer = $ 192,351

• Requirement ‘b’
  Inventory at retail = $ 361,335
  Inventory at base = $ 361,335 / 1.09 = $ 331,500
  This is MORE than beginning inventory at Retail $ 298,500

Excess of $ 331,500 over $ 298,500 = $ 33,000 [new layer]
New Layer at retail = 33000 x 1.09 = $ 35,970
New Layer at cost = $ 35,970 x 74% = $ 26,618
Add: Base Layer = $ 211,935
Inventory at cost = 26618 + 211935 = $ 238,553
Answer = $ 238,553