9-28E - Intermediate Accounting (Kieso)

Question

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.

Step-by-Step Solution

Answer

Answer

(a) Ending inventory equals $51,546.

(b) Ending inventory equals $51,737.

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

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: 

$$\begin{gathered} \mathbf{\text{Cost of goods sold=Begining Inventory+Purchases-Ending inventory}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{108}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{\$}\mathbf{51}\mathbf{,}\mathbf{737} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{86}\mathbf{.}\mathbf{863} \end{gathered}$$

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