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

Chapter 8, Problem 7RE, Uncle Butchs Hunting Supply Shop reports the following information related to inventory: Calculate

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 FIFO cost flow 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.

FIFO: Under this inventory method, the units that are purchased first are sold first. Thus, it starts from the selling of the beginning inventory, followed by the units purchased in a chronological order of their purchases took place during a particular period.

Compute the ending inventory using the retail inventory method under the FIFO cost flow assumption.

Ending Inventory - FIFO
DetailsCost ($)Retail ($)
Purchases75,000200,000
Markups (net) 15,000
Markdowns0(22,000)
Goods available for sale after markdowns75,000193,000
Add: Beginning inventory35,00092,000
Goods available for sale110,000285,000
Less: Sales (178,000)
Ending inventory at retail $107,000
Ending inventory at cost$41,623 

Table (1)

Working note 1:

Calculate ending inventory at cost:

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

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