Problem 1 A subsidiary of J & J Products is in the process of preparing interim
ID: 2332465 • Letter: P
Question
Problem 1
A subsidiary of J & J Products is in the process of preparing interim financial statements. Since they take physical inventory on an annual basis they use the Conventional Retail Inventory Method to estimate inventory. Fortunately, J & J Products keeps very detailed inventory records at both cost and retail. The following information for containers, as of the end of the third quarter, 2015, is provided.
Using the conventional retail inventory method calculate ending inventory at cost (for the third quarter of 2015).
Please show all calculations in detail. thanks!!!
COST RETAIL BEGINNING INVENTORY 90,000 167,000 PURCHASES 250,000 435,000 PURCHASE RETURNS 8,000 MARKUPS 10,000 MARKUPS CANCELLATIONS 25,000 MARKDOWNS 5,000 EMPLOYEE DISCOUNTS 9,000 SALES 400,000Explanation / Answer
Cost
Retail
Beginning Inventory
90000
167000
Purchases
250000
435000
Purchase Returns
-8000
13920
Total
332000
615920
Add: Net Mark-up
Mark-ups
10000
Mark-up Cancellation
-25000
Total
332000
600920
Less:
Net Markdowns
-5000
Net Sales
-400000
Employees Discount
-9000
186920
Cost to Retail Ratio = 332,000 / 600,920 = 55.25%
Ending Inventory at lower of cost or market:
Cost = 186,920 * 55.25% = $ 103,273
Market Value = 186,920
Answe= $ 103,273
Cost
Retail
Beginning Inventory
90000
167000
Purchases
250000
435000
Purchase Returns
-8000
13920
Total
332000
615920
Add: Net Mark-up
Mark-ups
10000
Mark-up Cancellation
-25000
Total
332000
600920
Less:
Net Markdowns
-5000
Net Sales
-400000
Employees Discount
-9000
186920
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