Montclair State University

1
Montclair State University

• Accounting 301
• Homework
• Problem
• 5-5

2
Retail Inventory Methodto ApproximateLower of
Cost or Market
3
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory

4
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0

5
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases

6
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3

7
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2

8
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000

9
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000

10
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000

11
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000
• Cost/retail ratio

12
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000
• Cost/retail ratio 90/(195

13
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000
• Cost/retail ratio 90/(195 10

14
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000
• Cost/retail ratio 90/(195 10) 44.0

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Retail Inventory Method to Approximate LCM

• Cost Retail
• Ending inventory, at retail 50,000
• Cost/retail ratio 90/(195 10) 44.0
• Ending inventory at lower of
• average cost or market 22,000

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Retail Inventory Method to Approximate LCM

• Cost Retail
• Ending inventory, at retail 50,000
• Cost/retail ratio 90/(195 10) 44.0
• Ending inventory at lower of
• average cost or market 22,000

17
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000
• Cost/retail ratio

18
Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000
• Cost/retail ratio 70/(145

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Retail Inventory Method to Approximate LCM

• Cost Retail
• Beginning inventory 20,000 50,000 40.0
• Purchases 70,000 145,000 48.3
• Total 90,000 195,000 46.2
• Net markups 10,000
• Net markdowns (5,000)
• Goods available 200,000
• Sales 150,000
• Ending inventory, at retail 50,000
• Cost/retail ratio 70/(145 10) 45.0

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Retail Inventory Method to Approximate LCM

• Cost Retail
• Ending inventory, at retail 50,000
• Cost/retail ratio 70/(145 10) 45.0
• Ending inventory at lower of
• fifo cost or market 22,500

21
Retail Inventory Method to Approximate LCM

• Cost Retail
• Ending inventory, at retail 50,000
• Cost/retail ratio 70/(145 10) 45.0
• Ending inventory at lower of
• fifo cost or market 22,500

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Homework Problem 5-5