Question

Late in 2017, Joan Seceda and four other investors took the chain of Metlock Department Stores private, and the company has just completed its third year of operations under the ownership of the investment group. Andrea Selig, controller of Metlock Department Stores, is in the process of preparing the year-end financial statements. Based on the preliminary financial statements, Seceda has expressed concern over inventory shortages, and she has asked Selig to determine whether an abnormal amount of theft and breakage has occurred. The accounting records of Metlock Department Stores contain the following amounts on November 30, 2020, the end of the fiscal year.

		Cost		Retail
Beginning inventory		$69,400		$99,200
Purchases		268,000		395,700
Net markups				49,400
Net markdowns				110,100
Sales revenue				321,300

According to the November 30, 2020, physical inventory, the actual inventory at retail is $107,500.

Estimate the amount of shortage, at retail, that has occurred at Metlock Department Stores during the year ended November 30, 2020.

Estimated inventory shortage

$

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Answer 1

Ans:

Particulars	Cost	Retail
Beginning Inventory	69,400	99,200
Purchases	268,000	395,700
Net Markups		49,400
Net Markdown		(110,100)
Net Purchases	268,000	335,000
Goods Available {including beginning Inventory}		434,200
Sales revenue		321,300
Estimated Ending Inventory at Retail{Goods Available-Sales Revenue}		112,900
Cost to Retail percentage {268,000/335,000*100}:80%
Beginning Inventory Layer Incremental Increase	69,400	99,200
At Retail {112,900-99,200}		13,700
At Cost {13,700*80%}	10,960
Estimated Ending Inventory at LIFO Cost
LIFO	80,360	112,900

A). Estimated Ending Inventory at retail= 112,900

B). Actual Ending Inventory at retail=107,500

Shortage= 112,900-107,500

=> 5,400 units