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Chapter 9: 9-28E (page 482)

Question:Amiras Corporation began operations on January 1, 2017, with a beginning inventory of \(30,100 at cost and \)50,000 at retail. The following information relates to 2017. Retail Net purchases (\(108,500 at cost) \)150,000 Net markups 10,000 Net markdowns 5,000 Sales revenue 126,900 Instructions (a) Assume Amiras decided to adopt the conventional retail method. Compute the ending inventory to be reported in the balance sheet. (b) Assume instead that Amiras decides to adopt the dollar-value LIFO retail method. The appropriate price indexes are 100 at January 1 and 110 at December 31. Compute the ending inventory to be reported in the balance sheet. (c) On the basis of the information in part (b), compute cost of goods sold.

Short Answer

Expert verified

Answer

(a) Ending inventory equals $51,546.

(b) Ending inventory equals $51,737.

(c) Cost of goods sold equals $86,863.

Step by step solution

01

Calculation of ending inventory per conventional retail method

(a) Ending inventory at cost is calculated as follows:

Cost

Retail

Beginning inventory

$30,100

$50,000

Purchases

108,500

150,000

Net markups

10,000

Totals

138,600

210,000

Net markdowns

5,000

Sales price of goods available

205,000

Less: Sales

126,900

Ending inventory at retail

78,100

Cost-to-retail percentage (138600/210000)

66%

Ending inventory at cost (78,100*66%)

$51,546

Ending inventory to be reported in the balance sheet equals $51,546.

02

Calculation of ending inventory per dollar-value LIFO retail method

Ending inventory is calculated as follows:

Cost

Retail

Beginning inventory

$30,100

$50,000

Purchases

108,500

150,000

Net markups

10,000

Net markdowns

5,000

Total (excluding beginning inventory)

108,500

155,000

Total (including beginning inventory)

138,600

205,000

Less: Sales

126,900

Ending inventory at retail

$78,100

Cost-to-retail percentage (108500/155000)

70%

Cost-to-retail percentage beginning inventory (30,100/50,000)

60.20%

Ending inventory at retail

Layers at retail prices

Price Index

Cost-to-retail percentage

Ending inventory at LIFO cost

$78,100

$50,000

x

100

x

60.20%

=

$30,100

28,100

x

110%

x

70%

=

21,637

$78,100

$51,737

Ending inventory to be reported equals $51,737.

03

Calculation of cost of goods sold

(c) Cost of goods sold is calculated as follows:

Costofgoodssold=BeginingInventory+Purchases-Endinginventory=$30,000+$108,500-$51,737=$86.863

Thus, the cost of goods sold equals $86,863.

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Most popular questions from this chapter

Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2017. Jim Alcide, controller for Garcia, has gathered the following data concerning inventory. At May 31, 2017, the balance in Garcia’s Raw Materials Inventory account was \(408,000, and Allowance to Reduce Inventory to NRV had a credit balance of \)27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia’s May 31, 2017, financial statements for inventory under the LCNRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Net Realizable Cost Sales Price Value Aluminum siding \( 70,000 \) 64,000 \( 56,000 Cedar shake siding 86,000 94,000 84,800 Louvered glass doors 112,000 186,400 168,300 Thermal windows 140,000 154,800 140,000 Total \)408,000 \(499,200 \)449,100 Instructions (a) Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017. (b) For the fiscal year ended May 31, 2017, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to NRV. (c) Explain the rationale for the use of the LCNRV rule as it applies to inventories

Steele Corporation purchased a significant amount of raw materials inventory for a new product that it is manufacturing. Steele uses the lower-of-average-cost-or-net realizable value (LCNRV) rule for these raw materials. The net realizable value of the raw materials is below the original cost. In the last 2 years, each purchase has been at a lower price than the previous purchase, and the ending inventory quantity for each period has been higher than the beginning inventory quantity for that period. Instructions (a) (1) At which amount should Steele’s raw materials inventory be reported on the balance sheet? Why? (2) In general, why is the LCNRV rule used to report inventory? (b) What would have been the effect on ending inventory and cost of goods sold had Steele used the LIFO inventory method instead of the average-cost inventory method for the raw materials? Why?

In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Sales price 14.80 19.20 15.20 10.40 17.80 Estimated cost to complete 1.50 1.90 1.65 .80 1.00 Estimated cost to sell .50 .70 .55 .40 .60

Question:The conventional retail inventory method yields results that are essentially the same as those yielded by the lower-of-cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.

Use the information for Kemper Company from BE9-7. In 2018, Kemper paid \(1,000,000 to obtain the raw materials which were worth \)950,000. Prepare the entry to record the purchase
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