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9-28E

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Intermediate Accounting (Kieso)
Found in: Page 482

Short Answer

Question:Amiras Corporation began operations on January 1, 2017, with a beginning inventory of $30,100 at cost and $50,000 at retail. The following information relates to 2017. Retail Net purchases ($108,500 at cost) $150,000 Net markups 10,000 Net markdowns 5,000 Sales revenue 126,900 Instructions (a) Assume Amiras decided to adopt the conventional retail method. Compute the ending inventory to be reported in the balance sheet. (b) Assume instead that Amiras decides to adopt the dollar-value LIFO retail method. The appropriate price indexes are 100 at January 1 and 110 at December 31. Compute the ending inventory to be reported in the balance sheet. (c) On the basis of the information in part (b), compute cost of goods sold.

Answer

(a) Ending inventory equals $51,546.

(b) Ending inventory equals $51,737.

(c) Cost of goods sold equals $86,863.

See the step by step solution

Step by Step Solution

Step 1: Calculation of ending inventory per conventional retail method

(a) Ending inventory at cost is calculated as follows:

Cost

Retail

Beginning inventory

$30,100

$50,000

Purchases

108,500

150,000

Net markups

10,000

Totals

138,600

210,000

Net markdowns

5,000

Sales price of goods available

205,000

Less: Sales

126,900

Ending inventory at retail

78,100

Cost-to-retail percentage (138600/210000)

66%

Ending inventory at cost (78,100*66%)

$51,546

Ending inventory to be reported in the balance sheet equals $51,546.

Step 2: Calculation of ending inventory per dollar-value LIFO retail method

Ending inventory is calculated as follows:

Cost

Retail

Beginning inventory

$30,100

$50,000

Purchases

108,500

150,000

Net markups

10,000

Net markdowns

5,000

Total (excluding beginning inventory)

108,500

155,000

Total (including beginning inventory)

138,600

205,000

Less: Sales

126,900

Ending inventory at retail

$78,100

Cost-to-retail percentage (108500/155000)

70%

Cost-to-retail percentage beginning inventory (30,100/50,000)

60.20%

Ending inventory at retail

Layers at retail prices

Price Index

Cost-to-retail percentage

Ending inventory at LIFO cost

$78,100

$50,000

x

100

x

60.20%

=

$30,100

28,100

x

110%

x

70%

=

21,637

$78,100

$51,737

Ending inventory to be reported equals $51,737.

Step 3: Calculation of cost of goods sold

(c) Cost of goods sold is calculated as follows:

Thus, the cost of goods sold equals $86,863.

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