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*Pr. 9-116—Retail LIFO.
Horne Book Store uses the conventional retail method and is now considering converting to the LIFO retail method for the period beginning 1/1/07. Available information consists of the following:

 

2006

 

 

2007

 

 

Cost

 

Retail

 

Cost

 

Retail

 

Inventory 1/1

$ 12,500

$ 22,500

$ ?

 

$ ?

Purchases (net)

250,000

347,500

245,000

345,000

Net markups

—

5,000

—

10,000

Net markdowns

—

2,500

—

5,000

Sales (net)

—

309,000

—

311,000

Loss from breakage

—

500

—

-0-

Applicable price index

—

100

—

110

*Pr. 9-116 (cont.)

Following is a schedule showing the computation of the cost of inventory on hand at 12/31/06 based on the conventional retail method.

 

Cost

 

Retail

 

Ratio

Inventory 1/1/06

$ 12,500

$ 22,500

Purchases (net)

250,000

347,500

Net markups

 

—

 

5,000

Goods available

$262,500

375,000

70%

Sales (net)

 

(309,000)

Net markdowns

 

(2,500)

Loss from breakage

 

(500)

Inventory 12/31/06 at retail

 

$ 63,000

Inventory 12/31/06 at LCM ($63,000 × 70%)

$ 44,100

Instructions
(a)     Prepare the journal entry to convert the inventory from the conventional retail to the LIFO retail method. Show detailed calculations to support your entry.
(b)     Prepare a schedule showing the computation of the 12/31/07 inventory based on the LIFO retail method as adjusted for fluctuating prices. Without prejudice to your answer to (a) above, assume that you computed the 1/1/07 inventory (retail value $49,000) under the LIFO retail method at a cost of $34,000.

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