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Chapter 9: 19E (page 480)

Presented below is information related to Aaron Rodgers Corporation for the current year. Beginning inventory \( 600,000 Purchases 1,500,000 Total goods available for sale \)2,100,000 Sales revenue 2,500,000 Instructions Compute the ending inventory, assuming that (a) gross profit is 45% of sales, (b) gross profit is 60% of cost, (c) gross profit is 35% of sales, and (d) gross profit is 25% of cost.

Short Answer

Expert verified

(a) Ending inventory is $725,000.

(b) Ending inventory is $537,500.

(c) Ending inventory is $475,000.

(d) Ending inventory is $100,000.

Step by step solution

01

Calculation of gross profit on sales in case (b)

Gross profit on sales is calculated as follows:

Grossprofitpercentageonsales=Percentagemarkuponcost100%+Percentagemarkuponcost=60%100%+60%=37.50%

02

Calculation of gross profit on sales in case (d)

Gross profit on sales is calculated as follows:

Grossprofitpercentageonsales=Percentagemarkuponcost100%+Percentagemarkuponcost=25%100%+25%=20%

03

Calculation of ending inventory

Ending inventory is calculated as follows:


(a)

(b)

(c)

(d)

Beginning inventory

$600,000

$600,000

$600,000

$600,000

Purchases

1,500,000

1,500,000

1,500,000

1,500,000

Total goods available for sale (A)

$2,100,000

$2,100,000

$2,100,000

$2,100,000






Sales Revenue

$2,500,000

$2,500,000

$2,500,000

$2,500,000

Gross Profit (Sales Revenue*Gross Profit Percentage)

$1,125,000

$937,500

$875,000

$500,000

Cost of goods sold (B)

$1,375,000

$1,562,500

$1,625,000

$2,000,000






Ending inventory (A-B)

$725,000

$537,500

$475,000

$100,000

Thus, ending inventory equals $725,000, $537,500, $475000 and $100,000.

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Most popular questions from this chapter

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. (AICPA adapted)

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Net realizable value 14.50 19.20 15.20 10.40 16.40 Net realizable value less normal profit 12.80 17.60 13.75 8.80 14.80 Market (replacement cost) 14.80 17.20 12.80 9.70 16.80

Starfish Company (a company using GAAP and the LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish’s financials? (a) During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (b) During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (d) During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory methodare used as compared to GAAP and LIFO.

Question:At December 31, 2017, Ashley Co. has outstanding purchase commitments for 150,000 gallons, at \(6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2017, is \)5.90, how would you treat this situation in the accounts?

In its 2015 annual report, Gap Inc. reported inventory of \(1,889 million on January 31, 2015, and \)1,928 million on February 1, 2014, cost of goods sold of \(10,146 million for 2015, and net sales of \)16,435 million. Compute Gap’s inventory turnover and the average days to sell inventory for the fiscal year 2015
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