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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 Weber Corporation uses the retail inventory method to estimate its inventory balances. The following information is available on June 30:

Chapter 8, Problem 9P, Retail Inventory Method Weber Corporation uses the retail inventory method to estimate its inventory

Required:

1. Compute the inventory on June 30 using the conventional retail inventory method (lower of average cost or market). Round the cost-to-retail ratio to 3 decimal places.

2. Independent of Requirement 1, assume that the June 30 inventory was $80,000 at retail and that the cost-to-retail ratio is 50%. If the price level of the Inventory has risen by 5% during the period, compute the cost of the June 30 inventory under the dollar-value retail LIFO method, assuming that the company adopted the method at the beginning of the year.

1.

To determine

Calculate the amount of ending inventory using the conventional retail inventory 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 amount of ending inventory using the conventional retail inventory method.

W Corporation
Computation of Ending Inventory Using Conventional Retail Inventory Method
At June 30
DetailsCost ($)Retail ($)
Beginning inventory25,00060,000
Net purchases73,000175,000
Net additional markups02,000
Goods available for sale before markdowns98,000237,000
Less: Net sales  (205,000)
          Net markdowns (5,000)
Estimated ending inventory at retail $27,000
Estimated ending inventory at cost (CRM)$11,178 

Table (1)

Working note 1:

Calculate the amount of net purchases at cost.

Net purchases at cost = (Purchases at costPurchases return)=($75,000$2,000)=$73,000

Working note 2:

Calculate the amount of net purchases at retail.

Net purchases at retail = (Purchases at retail Purchases return)=($180,000$5,000)=$175,000

Working note 3:

Calculate the amount of net additional markups

2.

To determine

Calculate the cost of ending inventory using the dollar-value LIFO retail inventory method.

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