Question

Question 1

Retail Inventory Method

Uncle Butch's Hunting Supply Shop reports the following information related to inventory:

	Cost	Retail
Beginning inventory	$ 35,000	$ 92,000
Purchases	75,000	200,000
Net additional markups	—	15,000
Net markdowns	—	(22,000)
Goods available for sale	$110,000	$ 285,000
Sales		(178,000)
Ending inventory at retail		$ 107,000

Calculate Uncle Butch's' ending inventory using the retail inventory method under the FIFO cost flow assumption. Round the cost-to-retail ratio to 3 decimal places.

____________________________________________________________________________________________________

Question 2

The following are the inventories for the years 2016, 2017, and 2018 for Parry Company:

	Cost	Market
January 1, 2016	$50,000	$50,000
December 31, 2016	64,000	60,000
December 31, 2017	71,000	70,000
December 31, 2018	75,000	78,000

Required:

1.

Assume the inventory that existed at the end of each year was sold in the subsequent year. Prepare journal entries to record the lower of cost or market for each of the following alternatives.

	a. allowance method, perpetual inventory system
	b. direct method, perpetual inventory system

2.

Next Level Explain any differences in inventory valuation and income between the two methods.

1. General Journal

. Assume Parry uses the allowance method and a perpetual inventory system.

Prepare the necessary journal entries to record:

	1. the correct inventory valuation on December 31, 2016
	2. the reduction in inventory when the inventory from December 31, 2016 is sold during 2017 Additional Instructions
	3. the correct inventory valuation on December 31, 2017
	4. the reduction in inventory when the inventory from December 31, 2017 is sold during 2018 Additional Instructions
	3. the correct inventory valuation on December 31, 2018 (if necessary)

2. Next level

Enter the effect on income with the write down of inventory at December 31 each year under each method. Additional Instructions

Effect on Income	Periodic	Perpetual
December 31, 2016
December 31, 2017
December 31, 2018

Enter the value of inventory at December 31 each year under each method.

Inventory valuation	Periodic	Perpetual
December 31, 2016
December 31, 2017
December 31, 2018

Answer 1

Question - (1) -

Answer -

Calculation of Uncle Butch's' ending inventory using the retail inventory method under the FIFO cost flow assumption -

Particulars	Explanation	Cost ($)	Retail ($)
Purchases	Given in question	75000	200000
Add: Net additional markups	Given in question	-	15000
Less: Net markdowns	Given in question	-	(22000)
Goods available for sale after markdowns	-	75000	193000
Add: Beginning inventory	Given in question	35000	92000
Goods available for sale	-	110000	285000
Less: Sales	Given in question	-	(178000)
Ending inventory at Retail	$285000 - $178000	-	107000
Ending inventory at Cost	Cost to Retail percentage = ($75000 / $193000) = 38.9% Ending inventory at Cost = Ending inventory at Retail * Cost to Retail percentage = $107000 * 38.9%	41623	-