INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Question
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Chapter 9, Problem 9.19E
To determine

Dollar-Value-LIFO: This method shows all the inventory figures at dollar price rather than units. Under this inventory method, the units that are purchased last are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.

To Determine: the cost-to-retail percentage for the inventory on hand at 1/1/2016.

Expert Solution
Check Mark

Explanation of Solution

Determine the cost-to-retail percentage for the inventory on hand at 1/1/2016.

Cost-to retail percentage} = (Beginning inventory at costBeginning inventory at retail×100)=($21,000$28,000×100)=75% (1)

Conclusion

Therefore, the cost-to-retail percentage for the inventory on hand at 1/1/2016 is 75%.

To determine

the cost-to-retail percentage for the inventory on hand at 12/31/2016.

Expert Solution
Check Mark

Explanation of Solution

Determine the cost-to-retail percentage for the inventory on hand at 12/31/2016.

Cost-to retail percentage} = (LIFOlayeraddedatcurrentyearcostLIFOlayeraddedatcurrentyearretail)=$1,792(7)$2,240(6)=80% (2)

Working notes:

Calculate the amount of ending inventory at base year retail prices.

Ending inventory at base year retail prices (2016) }(Estimated ending inventory at retailRetail price index)=($33,6001.12)=$30,000 (2)

Calculate the amount of inventory layers at base year retail prices.

Inventory layersadded at base year retail prices }= Beginning inventory at retail=$28,000 (Base) (3)

Calculate the amount of inventory layers at current year retail prices.

Inventory layers at current year retail prices (2016) }(Ending inventory at base year retail prices (2016)Beginning inventory at retail (2016))=$30,000$28,000=$2,000 (4)

Calculate the amount of inventory layers converted to cost (Base).

Inventory layers converted to cost =(Beginning inventory at retail (Base)× Base price index×Base layer cost-to retail percentage)=($18,750×1.00×80%)=$15,000 (5)

Calculate the amount of inventory layers added at current year retail (2016).

Inventory layersaddedatcurrentyearretail (2016) }=(Inventory layers at current year retail prices (2016)× Retail price index (2016))=($2,000×1.12)=$2,240 (6)

Calculate the amount of inventory layers added at current year cost (2016).

Inventory layersaddedatcurrentyearcost (2016) }=(EndingInventory at current year cost(2016)  BeginningInventory at current year cost(2016))=$22,792$21,000=$1,792 (7)

Conclusion

Therefore, the cost-to-retail percentage for the inventory on hand at 12/31/2016 is 80%.

To determine

the ending inventory for 2017.

Expert Solution
Check Mark

Explanation of Solution

Calculate the amount of estimated ending inventory for 2017.

Details Cost ($) Retail ($)
Beginning inventory 22,792 33,600
Add:  Net purchases 60,000 88,400
Goods available for sale – Including beginning inventory 82,792 122,000
Less:  Net sales   (80,000)
Estimated ending inventory at current year retail prices   42,000
Estimated ending inventory at cost 26,864  

Table (1)

Working notes:

Calculate current year layer (2016) cost-to retail percentage.

Current year cost-to retail percentage (2016)} ={ [Goods available for sale at cost (including beginning inventory)][Goods available for sale at retail(including beginning inventory)]×100}=($82,792$122,000×100)=67.87% (8)

Calculate the amount of estimated ending inventory at cost.

Ending inventory at dollar-value LIFO retail cost  
  Step 1 Step 2 Step 3
Ending inventory at year-end retail prices ($) Ending inventory at base year retail prices ($) Inventory layers at base year retail prices ($) Inventory layers converted to cost ($)
42,000 (refer Table 1) 35,000 (9) 28,000 (Base) (3) 21,000 (11)
  2,000 (2016) (4) 1,792 (7)
  5,000 (2017) (10)  4,072 (12)
Total ending inventory at dollar-value LIFO retail cost $26,864

Table (2)

Calculate the amount of ending inventory at base year retail prices.

Ending inventory at base year retail prices (2016) }(Estimated ending inventory at retailRetail price index)=($42,0001.20)=$35,000 (9)

Calculate the amount of inventory layers at current year retail prices.

Inventory layers at current year retail prices (2017) }(Ending inventory at base year retail prices (2017)Beginning inventory at retail (2016)Inventory layers at current year retail prices (2016))=$35,000$28,000$2,000=$5,000 (10)

Calculate the amount of inventory layers converted to cost (Base).

Inventory layers converted to cost =(Beginning inventory at retail (Base)× Base price index×Base layer cost-to retail percentage)=($28,000×1.00×75%)=$21,000 (11)

Calculate the amount of inventory layers converted to cost (2017).

Inventory layers converted to cost (2017)} =((Inventory layers at current year retail prices (2017))× Retail price index (2017)×Current year cost-to retail percentage (2017))=($5,000×1.20×67.87%)=$4,072 (12)

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Chapter 9 Solutions

INTERMEDIATE ACCOUNTING

Ch. 9 - Explain the LIFO retail inventory method.Ch. 9 - Discuss the treatment of freight-in, net markups,...Ch. 9 - Explain the difference between the retail...Ch. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Explain the accounting treatment of material...Ch. 9 - Prob. 9.17QCh. 9 - Identify any differences between U.S. GAAP and...Ch. 9 - (Based on Appendix 9) Define purchase commitments....Ch. 9 - (Based on Appendix 9) Explain how purchase...Ch. 9 - Lower of cost or net realizable value LO91 Ross...Ch. 9 - Lower of cost or net realizable value LO91 SLR...Ch. 9 - Prob. 9.3BECh. 9 - Gross profit method; solving for unknown LO92...Ch. 9 - Prob. 9.5BECh. 9 - Prob. 9.6BECh. 9 - Prob. 9.7BECh. 9 - Prob. 9.8BECh. 9 - Prob. 9.9BECh. 9 - Prob. 9.10BECh. 9 - Prob. 9.11BECh. 9 - Prob. 9.12BECh. 9 - Prob. 9.13BECh. 9 - Prob. 9.14BECh. 9 - Lower of cost or net realizable value LO91 Herman...Ch. 9 - Prob. 9.2ECh. 9 - Prob. 9.3ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Gross profit method LO92 Royal Gorge Company uses...Ch. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Prob. 9.12ECh. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - Prob. 9.19ECh. 9 - Prob. 9.20ECh. 9 - Prob. 9.21ECh. 9 - Prob. 9.22ECh. 9 - E9–23 Inventory errors • LO9–7 For each of the...Ch. 9 - Prob. 9.24ECh. 9 - Prob. 9.25ECh. 9 - Concepts; terminology LO91 through LO97 Listed...Ch. 9 - Prob. 9.27ECh. 9 - Prob. 9.28ECh. 9 - Prob. 1CPACh. 9 - Prob. 2CPACh. 9 - Prob. 3CPACh. 9 - Prob. 4CPACh. 9 - Prob. 5CPACh. 9 - Prob. 1CMACh. 9 - Prob. 2CMACh. 9 - Prob. 3CMACh. 9 - Prob. 9.1PCh. 9 - Prob. 9.2PCh. 9 - Prob. 9.3PCh. 9 - Prob. 9.4PCh. 9 - Prob. 9.5PCh. 9 - Prob. 9.6PCh. 9 - Prob. 9.7PCh. 9 - Prob. 9.8PCh. 9 - Prob. 9.9PCh. 9 - Prob. 9.10PCh. 9 - Prob. 9.11PCh. 9 - P9–12 Charge in methods • LO9–6 Rockwell...Ch. 9 - Prob. 9.13PCh. 9 - Prob. 9.14PCh. 9 - Prob. 9.15PCh. 9 - Prob. 9.16PCh. 9 - Judgment Case 9–1 Inventoriable costs: lower of...Ch. 9 - Integrating Case 9–3 Unit LIFO and lower of cost...Ch. 9 - Prob. 9.4BYPCh. 9 - Prob. 9.5BYPCh. 9 - Prob. 9.6BYPCh. 9 - Prob. 9.7BYPCh. 9 - Prob. 9.8BYPCh. 9 - Prob. 9.9BYPCh. 9 - Judgment Case 910 Inventory errors LO97 Some...Ch. 9 - Prob. 9.11BYPCh. 9 - Prob. 9.12BYPCh. 9 - Prob. 1AFKC
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