Late in 2014, Joan Seceda and four other investors took thechain of Becker Department Stores private, and the company has justcompleted its third year of operations under the ownership of theinvestment group. Andrea Selig, controller of Becker DepartmentStores, is in the process of preparing the year-end financialstatements. Based on the preliminary financial statements, Secedahas expressed concern over inventory shortages, and she has askedSelig to determine whether an abnormal amount of theft and breakagehas occurred. The accounting records of Becker Department Storescontain the following amounts on November 30, 2017, the end of thefiscal year.
Cost
Retail
Beginning inventory
$ 68,000
$100,000
Purchases
255,000
400,000
Net markups
50,000
Net markdowns
110,000
Sales revenue
320,000
According to the November 30, 2017, physical inventory, theactual inventory at retail is $115,000.
Instructions:
(a)Describe the circumstances under which the retail inventorymethod would be applied and the advantages of using the retailinventory method.
(b)Assuming that prices have been stable, calculate the value,at cost, of Becker Department Storesâ ending inventory using thelast-in, first-out (LIFO) retail method. Be sure to furnishsupporting calculations.
(c)Estimate the amount of shortage, at retail, that has occurredat Becker Department Stores during the year ended November 30,2017.
(d)Complications in the retail method can be caused by suchitems as (1) freight-in costs, (2) purchase returns and allowances,(3) sales returns and allowances, and (4) employee discounts.Explain how each of these four special items is handled in theretail inventory method.
Late in 2014, Joan Seceda and four other investors took thechain of Becker Department Stores private, and the company has justcompleted its third year of operations under the ownership of theinvestment group. Andrea Selig, controller of Becker DepartmentStores, is in the process of preparing the year-end financialstatements. Based on the preliminary financial statements, Secedahas expressed concern over inventory shortages, and she has askedSelig to determine whether an abnormal amount of theft and breakagehas occurred. The accounting records of Becker Department Storescontain the following amounts on November 30, 2017, the end of thefiscal year.
Cost | Retail | |
|---|---|---|
Beginning inventory | $ 68,000 | $100,000 |
Purchases | 255,000 | 400,000 |
Net markups | 50,000 | |
Net markdowns | 110,000 | |
Sales revenue | 320,000 |
According to the November 30, 2017, physical inventory, theactual inventory at retail is $115,000.
Instructions:
(a)Describe the circumstances under which the retail inventorymethod would be applied and the advantages of using the retailinventory method.
(b)Assuming that prices have been stable, calculate the value,at cost, of Becker Department Storesâ ending inventory using thelast-in, first-out (LIFO) retail method. Be sure to furnishsupporting calculations.
(c)Estimate the amount of shortage, at retail, that has occurredat Becker Department Stores during the year ended November 30,2017.
(d)Complications in the retail method can be caused by suchitems as (1) freight-in costs, (2) purchase returns and allowances,(3) sales returns and allowances, and (4) employee discounts.Explain how each of these four special items is handled in theretail inventory method.
Related questions
P9-13 (LO7) GROUPWORK (Retail, LIFO Retail, andInventory Shortage) Late in 2014, Joan Seceda and fourother investors took the chain of Becker Department Stores private,and the company has just completed its third year of operationsunder the ownership of the investment group. Andrea Selig,controller of Becker Department Stores, is in the process ofpreparing the year-end financial statements. Based on thepreliminary financial statements, Seceda has expressed concern overinventory shortages, and she has asked Selig to determine whetheran abnormal amount of theft and breakage has occurred. Theaccounting records of Becker Department Stores contain thefollowing amounts on November 30, 2017, the end of the fiscalyear.
| Cost | Retail | |
| Beginning inventory | $ 68,000 | $100,000 |
| Purchases | 255,000 | 400,000 |
| Net markups | 50,000 | |
| Net markdowns | 110,000 | |
| Sales revenue | 320,000 |
According to the November 30, 2017, physical inventory, theactual inventory at retail is $115,000.
Instructions
(a) Describe the circumstances under which theretail inventory method would be applied and the advantages ofusing the retail inventory method.
(b) Assuming that prices have been stable,calculate the value, at cost, of Becker Department Storesâ endinginventory using the last-in, first-out (LIFO) retail method. Besure to furnish supporting calculations.
(c)Estimate the amount of shortage, at retail,that has occurred at Becker Department Stores during the year endedNovember 30, 2017.
(d) Complications in the retail method can becaused by such items as (1) freight-in costs, (2) purchase returnsand allowances, (3) sales returns and allowances, and (4) employeediscounts. Explain how each of these four special items is handledin the retail inventory method
