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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Use the information in RE8-7. Calculate Uncle Butch’s Hunting Supply Shop’s ending inventory using the retail inventory method under the lower of average cost or market assumption. Round the cost to-retail ratio to 3 decimal places.

Uncle Butch’s Hunting Supply Shop reports the following information related to inventory:

Chapter 8, Problem 10RE, Use the information in RE8-7. Calculate Uncle Butchs Hunting Supply Shops ending inventory using the

Calculate Uncle Butch’s’ ending inventory using the retail inventory method under the FIFO cost flow assumption. Round the cost-to-retail ratio to 3 decimal places.

To determine

Compute the ending inventory using the retail inventory method under the lower of average cost or market assumption.

Explanation

Retail inventory method: This method is like a gross profit method. It is depends on the relationship between cost and selling price of the product , for the purpose of estimate the value of ending inventory and cost of goods sold.

It takes into account all the retail amounts that is, the current selling prices. Under this method, the goods available for sale, at retail is deducted from the sales, at retail to determine the ending inventory, at retail.

Lower-of-cost-or-market: The lower-of-cost-or-market (LCM) is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, either at current market value or at historical cost price of the inventory, whichever is less.

Compute the ending inventory using the retail inventory method under the lower of average cost or market assumption.

Ending Inventory - LCM
DetailsCost ($)Retail ($)
Beginning inventory35,00092,000
Add: Purchase75,000200,000
          Net additional markups015,000
Goods available for sale before markdowns110,000307,000
Less:  Net markdowns 0(22,000)
            Sales (178,000)
Estimated ending inventory at retail $107,000
Estimated ending inventory at cost (LCM)$38,306 

 Table (1)

Working note 1:

Calculate ending inventory at cost...

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