Chapter 8: Inventories: Special Valuation Issues
116. The Baby Super Store uses the average cost retail inventory method to determine its ending inventory. The
accounting records for the current year for the Baby Super Store contained the following information:
Cost
Retail
Beginning inventory
$18,600
$24,500
Purchases
59,500
84,000
Sales
95,000
Net markups
5,167
Net markdowns
2,067
In addition, the accounting records for Baby Super Store disclosed that freight-in charges were $6,700. What is the
cost-to-retail percentage to be used for ending inventory calculations?
117. Laura’s Homemade cannot decide which inventory method to use to determine its ending inventory. The accounting
records for the current year contain the following information:
Cost
Retail
Purchases
$67,800
$99,500
Beginning inventory
17,000
23,500
Sales
98,000
Net markups
6,500
Net markdowns
3,000
Compute the ending inventory under the following cost flow assumptions.
1) FIFO
2) lower of cost or market (based on average cost)
Chapter 8: Inventories: Special Valuation Issues
118. Laura’s Homemade cannot decide which inventory method to use to determine its ending inventory. The accounting
records for the current year contain the following information:
Cost
Retail
Purchases
$67,800
$99,500
Beginning inventory
17,000
23,500
Sales
98,000
Net markups
6,500
Net markdowns
3,000
Compute the cost of inventory under the following cost flow assumptions.
1) LIFO
2) Average Cost
1
Challenging
ACCT.WHAL.16.8.4 – LO: 8.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Chapter 8: Inventories: Special Valuation Issues
119. The Smith Company uses the retail inventory method to estimate inventory for interim financial statements. The
following inventory information is available:
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.
(1,050)
Determine the inventory value using the retail inventory method and the LIFO cost flow
assumption.
Chapter 8: Inventories: Special Valuation Issues
120. Given the following information for Miller, Inc.:
Cost
Retail
Markdown cancellations
$950
Markup cancellations
3,500
Employee discounts
1,020
Purchase returns
$1,030
1,520
Purchases
35,400
46,787
Inventory, January 1
7,160
13,820
Purchase discounts taken
756
Freight-in
4,000
Markups
14,500
Markdowns
2,600
Sales
56,700
Required:
a.
Determine the inventory value using the retail inventory method and the FIFO cost flow
assumption. Round off any decimals to two places.
b.
Determine the inventory value using the retail inventory method and the lower of average
cost or market cost flow assumption.
(1,520)
(756)
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ACCT.WHAL.16.8.4 – LO: 8.4
121. Guinea, Inc. adopted the dollar-value LIFO retail inventory method on January 1, 2016, when the price index was
100. The following information was taken from company records on December 31, 2016, when the price index was
110.
Cost
Retail
Sales
$190,000
Additional markups
18,000
Markup cancellations
6,000
Markdowns
8,000
Markdown cancellations
2,000
Inventory, January 1
$ 14,400
20,000
Purchases
158,000
199,000
Purchase returns
4,000
5,000
Required:
Compute the cost of the December 31, 2016, inventory. (Round off calculations to the nearest dollar.)
Beginning inventory:
Ending inventory at retail at base year prices:
Inventory change at retail at base year prices:
Inventory change at retail at relevant current prices:
Inventory change at current costs:
Layers
$14,400
6,160
$20,560
United States – BUSPORG: Analytic
United States – BUSPORG: Analytic
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122. Dahlia adopted the dollar-value LIFO retail inventory method on January 1, 2016. The following information for
2016 was taken from the company’s records:
Cost
Retail
Sales
$173,350
Net markups
2,000
Inventory, January 1, 2016
$ 24,300
30,000
Purchases
147,740
180,000
Net markdowns
4,000
The price index on January 1, 2016, was 100. On December 31, 2016, it was 105.
Required:
Compute the inventory value for December 31, 2016.
Beginning inventory:
$24,300/$30,000 = 0.81
Purchases:
$147,740/($180,000 + $2,000 − $4,000) = 0.83
Ending inventory at retail:
$34,650
Ending inventory at base year retail:
$34,650/1.05 = $33,000
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Challenging
ACCT.WHAL.16.8.5 – LO: 8.5
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
123. Donahue adopted the dollar-value LIFO retail inventory method on January 1, 2016. The following information for
2016 was taken from the company’s records:
Cost
Retail
Sales
$189,000
Net markups
6,000
Inventory, January 1, 2016
$ 21,000
30,000
Purchases
147,000
200,000
Net markdowns
10,700
The price index on January 1, 2016, was 100. On December 31, 2016, it was 110. Round cost/retail percentages to
the nearest whole percent if necessary.
Required:
Compute the inventory value for December 31, 2016.
Beginning inventory:
Purchases:
Ending inventory at retail:
Ending inventory at base year retail:
$30,000
3,000
$33,000
124. A list of errors is shown below:
Year-End
Cost of
Retained
Working
Errors
Goods Sold
Earnings
Capital
Ending inventory is overstated
________
________
________
Beginning inventory is overstated
________
________
________
Ending inventory is understated
________
________
________
Beginning inventory is understated
________
________
________
Purchases is overstated (recorded twice)
________
________
________
Purchases is understated (not recorded)
________
________
________
Required:
Show the effects of the errors on the indicated balance sheet and income statement items. Use the following symbols:
O = Overstated; U = Understated; N = No Effect.
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ACCT.WHAL.16.8.6 – LO: 8.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
125. Information:
Net Income
Error in
Year
per Books
Ending Inventory
2013
$75,000
$2,000 Overstatement
2014
54,000
2,800 Understatement
2015
96,000
1,900 Overstatement
Required:
Assuming that no corrections were made in any year, compute the correct income for each of the three years.
126. Certain errors are listed below.
Effect on
Error
Cost of
Goods Sold
Accounts
Payable
a.
Ending inventory is overstated
because of a miscount.
________
________
b.
Merchandise received was not recorded
in the purchases account, but it was
included in the physical count.
________
________
c.
Merchandise shipped FOB shipping
point was not included in purchases
or the ending physical count.
________
________
Required:
Indicate the effect the errors will have on cost of goods sold and accounts payable. Use +, −, and 0.
b.
1
Challenging
ACCT.WHAL.16.8.6 – LO: 8.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling