Question

Question 1

Madison Co. has determined its year-end inventory on a LIFO basis to be $609,000. Information pertaining to that inventory is as follows:

Selling price $ 729,000

Costs to sell 34,000

Normal profit margin 84,000

Replacement cost 629,000

What should be the reported value of Madison's inventory?

A) $609,000

B) $629,000

C) $694,000

D) $610,000

Question 2

Coastal Shores Inc. (CSI) was destroyed by Hurricane Fred on August 5, 2016. At January 1, CSI reported an inventory of $184,000. Sales from January 1, 2016, to August 5, 2016, totaled $494,000 and purchases totaled $209,000 during that time. CSI consistently marks up its products 60% of Sales. The estimated inventory loss due to Hurricane Fred would be:

A) $139,575

B) $84,250

C) $88,250

D) None of these answer choices are correct.

Question 3

A company using the conventional retail method has the following information for the current year's operations

Beginning inventory:   $100,000(Cost) $150,000(Retail)

Purchases : 500,000(Cost) 800,000(Retail)

Net Markups: 85,000(Retail)

Net Markdowns: 35,000(Retail)

Net sales: 750,000(Retail)

Management calculates the cost-to-retail percentage as 60%, equal to cost of $600,000 ($100,000 + $500,000) divided by retail of $1,000,000 ($150,000 + $800,000 + $85,000 - $35,000). Which of the following statements is correct?

A.) The cost-to-retail percentage should be calculated as cost of $600,000 divided by retail of $750,000 (Net sales).

B.) The retail amount should be $1,035,000 excluding net markdowns.

C.) The cost and retail amounts should not include beginning inventory of $ 100,000 and $150,000 respectively.

D.) The retail amount should be $950,000 excluding net markups and net markdowns.

Answer 1

Solution to Q1. The inventory should be valued at cost but when finished goods from which is produced from such raw material is valued at NRV the such raw material is also valued at NRV. So, in this case cost of finished goods =[ 729000-34000-84000]= $ 611000 & the replacement cost is $ 629000 which suggest that raw material should be valued at cost. Therefore the ans is A. $609000. Solution to Q2. Cost of goods sold = 494000×100/160= 308,750 ( as markup is 60% of sales so if we assume cost of 100 then sales would be 160). So, the loss of inventory= (opening inventory + purchases - cost of goods sold) = 184000+209000-308750 = 84250. Therefore the ans is B. 84250. Solution question to 3. Ans . B. The retail amt should be 1035000 excluding net markdowns.