The December 31, 2011 inventory of Moonlight Company consisted of four products,

Question

The December 31, 2011 inventory of Moonlight Company consisted of four products, for which certain information is provided below.

Product Orginal Cost Replacement Cost Estimated Disposal Expected Profit
Cost Selling Price On Sales

Product Org. Cost ReplacementCost Estimated Disposal Profit
Cost Exp. Selling Price On Sales

A 26.00 22.00 6.50 37.50 20%
B 42.00 35.00 12.00 48.00 25%
C 120.00 115.00 25.00 160.00 30%
D 16.00 15.80 3.00 22.00 10%

Instructions
Using the lower-of-cost-or-market approach applied on an individual-item basis, compute the inventory valuation that should be reported for each product on December 31, 2011.












When you undertook the preparation of the financial statements for Twilight Company at January 31, 2012, the following data were available:
At Cost At Retail
Inventory, February 1, 2011 $72,800 $ 98,500
Markdowns 35,000
Markups 63,000
Markdown cancellations 20,000
Markup cancellations 20,000
Purchases 225,500 301,000
Sales 325,000
Purchases returns 4,300 5,500
Sales returns 10,000

Instructions
Compute the ending inventory at cost as of January 31, 2012, using the retail method which approximates lower of cost or market. Your solution should be in good form with amounts clearly labeled.

Explanation / Answer

Retail inventory method:

Twilight Company

Beginning inventory $72,800 $98,500

Purchases 225,500 301,000

Less: purchase returns        4,300 221,200 5,500 295,500

Total                                                     $294,000 $394,000

Add: markups (net) 43,000

Totals $437,000

Less: Markdowns 15,000

Sales price of goods available       $422,000

Sales returns 10,000

Ending inventory at retail       $412,000

Ending inventory at cost $277,180.78

Ratio of cost to retail (67%)

(294,000/437,000* 412,000)

Product Ceiling Floor Designated Cost Lower of cost Market Market or market A (37.5-6.5=$31) (31-7.5=23.5) 23.5 26 23.5 B (48 - 12 = 36) (36-12=24) 24 42 24 C (160-25=135) (135-48=87) 87 120 87 D (22 -3 = 19) (19-2.2=16.8) 16.8 16 16

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