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Chapter 9: Question 17Q (page 474)

(a) Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data. Cost Retail Inventory, Jan. 1 \( 149,000 \) 283,500 Purchases 1,400,000 2,160,000 Freight-in 70,000 Markups, net 92,000 Markdowns, net 48,000 Sales revenue 2,175,000 (b) If the results of a physical inventory indicated an inventory at retail of $295,000, what inferences would you draw?

Short Answer

Expert verified

(a) Ending inventory at cost equals $199,531.25.

(b) Ending inventory at retail is $312,500, whereas, per the physical count, it is $295,000. This indicates that inventory at retail is worth $17,500, and inventory at a cost worth $11,173.75 is not accounted for.

Step by step solution

01

Calculation of ending inventory at retail

Ending inventory at retail is calculated as follows:

Cost

Retail

Beginning inventory

$149000

$283500

Purchases

1,400,000

2,160,000

Freight-in

70,000

0

Total

1,619,000

2,443,500

Add: Markups, net

92000

$1619000

2,535,500

Less: Markdowns, net

48000

2,487,500

Less: Sales revenue

2,175000

Ending inventory, at retail

$312,500

02

Calculation of ratio of cost to selling price

The ratio of cost to selling price is calculated as follows:

RatioofCosttoSellingPrice=InventoryatCostInventoryatRetail=$1,619,000$2,535,500=63.85%

03

Calculation of ending inventory at cost

The ending inventory at cost is calculated as follows:

Endinginventoryatcost=InventoryatRetail×RatioofCosttoSellingPrice=$312,500×63.85%=$199,531.25

04

Calculation of Not accounted inventory at retail

Not accounted inventory at retail is calculated as follows:

NotAccountedInventoryatRetail=EndingInventoryatRetail-PhysicalEndingInventoryatretail=$312,500-$295,000=$17,500

05

Calculation of Not accounted inventory at cost

Not accounted inventory at cost is calculated as follows:

NotaccountedInventoryatcost=NotaccountedinventoryatRetail×RatioofCostofSellingPrice=$17,500×63.85%=$11,173.75

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Most popular questions from this chapter

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 using LCNRV. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Sales value 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

Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the followingInventory (beginning) \( 80,000 Sales revenue \)415,000 Purchases 290,000 Sales returns 21,000 Purchase returns 28,000 Gross profi t % based on net selling price 35%Merchandise with a selling price of \(30,000 remained undamaged after the fire, and damaged merchandise has a net realizable value of \)8,150. The company does not carry fire insurance on its inventory. Instructions Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)

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

Kumar Inc. uses a perpetual inventory system. At January 1, 2017, inventory was \(214,000,000 at both cost and net realizable value. At December 31, 2017, the inventory was \)286,000,000 at cost and $265,000,000 at net realizable value. Prepare the entry under (a) the cost-of-goods-sold method and (b) the loss method.

The records of Ellen’s Boutique report the following data for the month of April. Sales revenue \(99,000 Purchases (at cost) \)48,000 Sales returns 2,000 Purchases (at sales price) 88,000 Markups 10,000 Purchase returns (at cost) 2,000 Markup cancellations 1,500 Purchase returns (at sales price) 3,000 Markdowns 9,300 Beginning inventory (at cost) 30,000 Markdown cancellations 2,800 Beginning inventory (at sales price) 46,500 Freight on purchases 2,400 Instructions Compute the ending inventory by the conventional retail inventory method
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