Harlequin Co. has used the LIFO retail method since it began operations in early 2015 (its base year). Its beginning inventory for 2016 was $36,000 at cost and $72,000 at retail prices. At the end of 2016, it computed its estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail percentage for 2016 transactions was 60%, what is the inventory balance that.  Harlequin Co. would report in its 12/31/16 balance sheet?

Question
Asked Nov 9, 2019
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Harlequin Co. has used the LIFO retail method since it began operations in early 2015 (its base year). Its beginning inventory for 2016 was $36,000 at cost and $72,000 at retail prices. At the end of 2016, it computed its estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail percentage for 2016 transactions was 60%, what is the inventory balance that.  Harlequin Co. would report in its 12/31/16 balance sheet? 

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Expert Answer

Step 1

Formula for computing cost-to-retail ratio or percentage.

Cost
- x100
Cost to retail ratio
Retail
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Cost - x100 Cost to retail ratio Retail

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Step 2

Compute ending inventory that would report in its 12/31/16 balance sheet as shown below:

C
E
10
Particulars
Cost
Retail
$36,000 S72,000
50%
11 Beginning inventory for 2016
12 Cost to retail ratio
13
14 Ending inventory for 2016
15 Cost to retail ratio
$72,000 $120,000
60%
16
17 Purcahses during 2016
18 Cost to retail ratio
$28,800 $48,000
60%
19
$64,800
20 Ending inventory reported in 12/31/16
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C E 10 Particulars Cost Retail $36,000 S72,000 50% 11 Beginning inventory for 2016 12 Cost to retail ratio 13 14 Ending inventory for 2016 15 Cost to retail ratio $72,000 $120,000 60% 16 17 Purcahses during 2016 18 Cost to retail ratio $28,800 $48,000 60% 19 $64,800 20 Ending inventory reported in 12/31/16

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Step 3

Calculation formulas:...

C
D
E
10
Particulars
Cost
Retail
11 Beginning inventory for 2016
36000
=D11/E11
72000
12 Cost to retail ratio
13
14 Ending inventory for 2016
15 Cost to retail ratio
-E14*D15 | 120000
0.6
16
E17*D18E14-E11
0.6
17 Purcahses during 2016
18 Cost to retail ratio
19
20 Ending inventory reported in 12/31/16 D11+D17
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C D E 10 Particulars Cost Retail 11 Beginning inventory for 2016 36000 =D11/E11 72000 12 Cost to retail ratio 13 14 Ending inventory for 2016 15 Cost to retail ratio -E14*D15 | 120000 0.6 16 E17*D18E14-E11 0.6 17 Purcahses during 2016 18 Cost to retail ratio 19 20 Ending inventory reported in 12/31/16 D11+D17

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