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Intermediate Accounting: Reporting...

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

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Retail Inventory Method The following data were available from Hegge Department Store’s records for the year ended December 31, 2019:

Chapter 8, Problem 12E, Retail Inventory Method The following data were available from Hegge Department Stores records for

Required:

Using the retail method, what is the estimate of the merchandise inventory at December 31, 2019, valued at the lower of cost or market: Round the cost-to-retail ratio to 3 decimal places.

To determine

Calculate the estimated cost of ending inventory valued at the LCM rule using the retail method.

Explanation

Retail inventory method: 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.

Calculate the estimated cost of ending inventory valued at the LCM rule using the retail method.

H Department Store
Merchandise Inventory at December 31, 2019
Retail Inventory method - LCM
DetailsCost ($)Retail ($)
Beginning inventory90,000130,000
Add:  Net purchase330,000460,000
          Net markups010,000
Goods available for sale before markdowns420,000600,000
Less:  Net markdowns  0(40,000)
            Sales (480,000)
Estimated ending inventory at retail $80,000
Estimated ending inventory at cost (LCM)$56,000 

Table (1)

Working note 1:

Calculate ending inventory at cost.

Step 1: Calculate cost-to-retail ratio...

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