GEN COMBO INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
GEN COMBO INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
9th Edition
ISBN: 9781260089035
Author: J. David Spiceland
Publisher: McGraw-Hill Education
Question
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Chapter 9, Problem 9.22E
To determine

Dollar-Value-LIFO: This method shows all the inventory figures at dollar price rather than units. Under this inventory method, the units that are purchased last, are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.

To Determine: the cost-to-retail percentage for the inventory on hand at 1/1/2018.

Expert Solution & Answer
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Explanation of Solution

Determine the cost-to-retail percentage for the inventory on hand at 1/1/2018.

Cost-to retail percentage} = (Beginning inventory at costBeginning inventory at retail×100)=($21,000$28,000×100)=75% (1)

Conclusion:

Therefore, the cost-to-retail percentage for the inventory on hand at 1/1/2018 is 75%.

To Determine: the cost-to-retail percentage for the inventory on hand at 12/31/2018.

Solution:

Determine the cost-to-retail percentage for the inventory on hand at 12/31/2018.

Cost-to retail percentage} = (LIFOlayeraddedatcurrentyearcostLIFOlayeraddedatcurrentyearretail)=$1,792(7)$2,240(6)=80% (2)

Working notes:

Calculate the amount of ending inventory at base year retail prices.

Ending inventory at base year retail prices (2018) }(Estimated ending inventory at retailRetail price index)=($33,6001.12)=$30,000 (2)

Calculate the amount of inventory layers at base year retail prices.

Inventory layersadded at base year retail prices }= Beginning inventory at retail=$28,000 (Base) (3)

Calculate the amount of inventory layers at current year retail prices.

Inventory layers at current year retail prices (2018) }(Ending inventory at base year retail prices (2018)Beginning inventory at retail (2018))=$30,000$28,000=$2,000 (4)

Calculate the amount of inventory layers converted to cost (Base).

Inventory layers converted to cost =(Beginning inventory at retail (Base)× Base price index×Base layer cost-to retail percentage)=($18,750×1.00×80%)=$15,000 (5)

Calculate the amount of inventory layers added at current year retail (2018).

Inventory layersaddedatcurrentyearretail (2018) }=(Inventory layers at current year retail prices (2018)× Retail price index (2018))=($2,000×1.12)=$2,240 (6)

Calculate the amount of inventory layers added at current year cost (2018).

Inventory layersaddedatcurrentyearcost (2018) }=(EndingInventory at current year cost(2018)  BeginningInventory at current year cost(2018))=$22,792$21,000=$1,792 (7)

Conclusion:

Therefore, the cost-to-retail percentage for the inventory on hand at 12/31/2018 is 80%.

To Determine: the ending inventory for 2019.

Solution:

Calculate the amount of estimated ending inventory for 2019.

Details Cost ($) Retail ($)
Beginning inventory 22,792 33,600
Add:  Net purchases 60,000 88,400
Goods available for sale – Including beginning inventory 82,792 122,000
Less:  Net sales (80,000)
Estimated ending inventory at current year retail prices 42,000
Estimated ending inventory at cost 26,864

Table (1)

Working notes:

Calculate current year layer (2018) cost-to retail percentage.

Current year cost-to retail percentage (2018)} ={ [Goods available for sale at cost (including beginning inventory)][Goods available for sale at retail(including beginning inventory)]×100}=($82,792$122,000×100)=67.87% (8)

Calculate the amount of estimated ending inventory at cost.

Ending inventory at dollar-value LIFO retail cost  
  Step 1 Step 2 Step 3
Ending inventory at year-end retail prices ($) Ending inventory at base year retail prices ($) Inventory layers at base year retail prices ($) Inventory layers converted to cost ($)
42,000 (refer Table 1) 35,000 (9) 28,000 (Base)(3) 21,000 (11)
  2,000 (2018)(4) 1,792 (7)
  5,000 (2019)(10) 4,072 (12)
Total ending inventory at dollar-value LIFO retail cost $26,864

Table (2)

Calculate the amount of ending inventory at base year retail prices.

Ending inventory at base year retail prices (2018) }(Estimated ending inventory at retailRetail price index)=($42,0001.20)=$35,000 (9)

Calculate the amount of inventory layers at current year retail prices.

Inventory layers at current year retail prices (2019) }(Ending inventory at base year retail prices (2019)Beginning inventory at retail (2018)Inventory layers at current year retail prices (2018))=$35,000$28,000$2,000=$5,000 (10)

Calculate the amount of inventory layers converted to cost (Base).

Inventory layers converted to cost =(Beginning inventory at retail (Base)× Base price index×Base layer cost-to retail percentage)=($28,000×1.00×75%)=$21,000 (11)

Calculate the amount of inventory layers converted to cost (2019).

Inventory layers converted to cost (2019)} =((Inventory layers at current year retail prices (2019))× Retail price index (2019)×Current year cost-to retail percentage (2019))=($5,000×1.20×67.87%)=$4,072 (12)

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Chapter 9 Solutions

GEN COMBO INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD

Ch. 9 - Explain the LIFO retail inventory method.Ch. 9 - Discuss the treatment of freight-in, net markups,...Ch. 9 - Explain the difference between the retail...Ch. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Explain the accounting treatment of material...Ch. 9 - It is discovered in 2018 that ending inventory in...Ch. 9 - Identify any differences between U.S. GAAP and...Ch. 9 - (Based on Appendix 9) Define purchase commitments....Ch. 9 - (Based on Appendix 9) Explain how purchase...Ch. 9 - Lower of cost or net realizable value LO91 Ross...Ch. 9 - Lower of cost or net realizable value LO91 SLR...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Prob. 9.5BECh. 9 - Gross profit method; solving for unknown LO92...Ch. 9 - Retail inventory method; average cost LO93 Kiddie...Ch. 9 - Retail inventory method; LIFO LO93 Refer to the...Ch. 9 - Conventional retail method LO94 Refer to the...Ch. 9 - Conventional retail method LO94 Roberson...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Dollar-value LIFO retail LO95 This exercise is a...Ch. 9 - Change i n inventory costing methods LO96 In...Ch. 9 - Change in inventory costing methods LO96 In 2018,...Ch. 9 - Inventory error LO97 In 2018, Winslow...Ch. 9 - Inventory error LO97 Refer to the situation...Ch. 9 - Lower of cost or net realizable value LO91 Herman...Ch. 9 - Lower of cost or net realizable value LO91 The...Ch. 9 - Lower of cost or net realizable value LO91 Tatum...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Gross profit method LO92 Royal Gorge Company uses...Ch. 9 - Prob. 9.12ECh. 9 - Retail inventory method; average cost LO93 San...Ch. 9 - Prob. 9.14ECh. 9 - Retail inventory method; LIFO LO93 Crosby Company...Ch. 9 - Prob. 9.16ECh. 9 - Conventional retail method; employee discounts ...Ch. 9 - Retail inventory method; solving for unknowns ...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Prob. 9.20ECh. 9 - Dollar-value LIFO retail LO95 Lance-Hefner...Ch. 9 - Prob. 9.22ECh. 9 - Change in inventory costing methods LO96 In 2018,...Ch. 9 - Prob. 9.24ECh. 9 - Error correction; inventory error LO97 During...Ch. 9 - Prob. 9.26ECh. 9 - Inventory error LO97 In 2018, the internal...Ch. 9 - Inventory errors LO97 In 2018, the controller of...Ch. 9 - Concepts; terminology LO91 through LO97 Listed...Ch. 9 - Prob. 9.30ECh. 9 - Prob. 9.31ECh. 9 - Lower of cost or net realizable value LO91 Decker...Ch. 9 - Prob. 9.2PCh. 9 - Lower of cost or market LO91 Forester Company has...Ch. 9 - Prob. 9.4PCh. 9 - Prob. 9.5PCh. 9 - Prob. 9.6PCh. 9 - Retail inventory method; conventional and LIFO ...Ch. 9 - Prob. 9.8PCh. 9 - Prob. 9.9PCh. 9 - Dollar-value LIFO retail method LO95 [This is a...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Retail inventory method; various applications ...Ch. 9 - Retail inventory method; various applications ...Ch. 9 - Prob. 9.14PCh. 9 - Inventory errors LO97 You have been hired as the...Ch. 9 - Inventory errors LO97 The December 31, 2018,...Ch. 9 - Integrating problem; Chapters 8 and 9; inventory...Ch. 9 - Purchase commitments Appendix In November 2018,...Ch. 9 - Judgment Case 91 Inventoriable costs; lower of...Ch. 9 - Integrating Case 93 FIFO and lower of cost or net...Ch. 9 - Prob. 9.4BYPCh. 9 - Prob. 9.5BYPCh. 9 - Prob. 9.6BYPCh. 9 - Prob. 9.7BYPCh. 9 - Real World Case 98 Various inventory issues;...Ch. 9 - Prob. 9.9BYPCh. 9 - Judgment Case 910 Inventory errors LO97 Some...Ch. 9 - Ethics Case 911 Overstatement of ending inventory ...Ch. 9 - Analysis Case 912 Purchase commitments Appendix...Ch. 9 - Continuing Cases Target Case LO93, LO94, LO95...Ch. 9 - Prob. 1CCIFRS
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