Company uses the retail inventory method to estimate inventory for interim finan
ID: 2359112 • Letter: C
Question
Company uses the retail inventory method to estimate inventory for interim financial statements. Cost Retail Beginning inventory $12,500 $15,000 Purchases 38,500 59,000 Freight-in 500 Purchase returns 1,800 3,000 Net markups 7,050 Sales 51,500 Net markdowns 1,050 REQUIRED: a. Determine the inventory value using the retail inventory method and the FIFO cost flow assumption. b. Determine the inventory value using the retail inventory method and the LIFO cost flow assumption. c. Determine the inventory value using the retail inventory method and the Average cost flow assumption.Explanation / Answer
Cost Retail
Beginning inventory................ $12,500 $15,000
Purchases.......................... 38,500 59,000
Freight-in......................... 500
Purchase returns................... (1,800) (3,000)
Net markups........................ 7,050
Net markdowns...................... (1,050)
Goods available for sale........... $49,700 $77,000
Less: Sales........................ 51,500
Ending inventory at retail......... $25,500
a. Average: 49,700/77,000 = .6455; .6455 x 25,500 = 16,460
b. LCM: 49,700/78,050 = .6368; .63568x 25,500 = 16,238
c. LIFO: This Year's Layer 10,500 x 0.6000 = 6,300
Last Year's Layer 15,000 x 0.8333 = 12,500
18,800
(FIFO Cost Ratio: 37,200/62,000 = .6000)
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