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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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At December 31, 2019, the following information was available from Crisford Company’s books:

Chapter 8, Problem 8MC, At December 31, 2019, the following information was available from Crisford Companys books: Sales

Sales for the year totaled $110,600; markdowns amounted to $1,400. Under the approximate lower of average cost or market retail method, Crisford’s inventory at December 31, 2019, was:

  1. a. $30,800
  2. b. $28.000
  3. c. $21,560
  4. d. $19,600

To determine

Calculate the C’s inventory at December 31, 2019 using market 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.

Conventional Retail Method: Conventional retail method refers to the estimation of the lower of average cost or market by eliminating the markdowns from the calculation of the cost-to-retail percentage.

In this case, the cost-to-retail percentage will be determined by dividing the goods available for sale at cost by the goods available for at retail (excluding markdowns). Thus, the conventional retail method will always result in lower estimation of ending inventory when the markdowns exist.

Calculate the C’s inventory at December 31, 2019 using market retail method:

DetailsCost ($)Retail ($)
Beginning inventory14,70020,300
Add:  Net purchase83,300115,500
          Net additional markups04,200
Goods available for sale - before markdowns98,000140,000
 
Less:  Net markdowns  0-1,400
Goods available for sale- after markdowns98,000138,600
Less:  Net sales -110,600
Estimated ending inventory at retail $28,000
Estimated ending inventory at cost$19,600 

Table (1)

Hence, the inventory at December 31, 2019 is $19,600.

Working notes:

Calculate cost-to-retail percentage...

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