Question

1. Harlequin Co. has used the LIFO retail method since it began

      operations in early 2015 (its base year). Its beginning inventory for 2016 was

      $36,000 at cost and $72,000 at retail prices. At the end of 2016, it computed its

      estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail

      percentage for 2016 transactions was 60%, what is the inventory balance that

      Harlequin Co. would report in its 12/31/16 balance sheet? Hint: $64,800

2. Using the data from #1 assume Harlequin uses the dollar-value LIFO retail

       method instead and that the retail price index for 2016 was 1.20. What is the

       inventory balance that Harlequin would report in its 12/31/16 balance sheet? Hint: $56,160

3. Sun Co. uses a periodic inventory system. Beginning inventory on Jan. 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the next year. So, cost of goods sold for this year was:
Hint: Overstated by $94,000

4.

Data related to the inventories of Alpine Ski Equipment is shown below:

	Skis	Boots	Apparel	Supplies
Selling price	$180,000	$150,000	$120,000	$60,000
Cost	128,000	133,000	90,000	45,000
Replacement cost	120,000	130,000	110,000	41,000
Sales commission	10%	10%	10%	10%
Normal gross profit ratio	20%	20%	15%	15%

A. In applying the LCM rule, the inventory of skis would be valued at: Hint: $126,000

B. In applying the LCM rule, the inventory of boots would be valued at: Hint: $130,000

5. Nu Company reported the following pretax data for its FIRST year of operations:

        Net Sales                                            $2,800

        Cost of goods available for sale         2,500

        Operating expenses                              880

        Effective tax rate                                     40%

        Ending inventory:

           if FIFO is elected                                1,060

           if LIFO is elected                                   820

  

A. What is Nu Company’s net income if it elects FIFO? Hint: $288

B. What is Nu Company’s net income if it elects LIFO? Hint: $144

Answer 1

Dear student, we cannot able to post solution more than four subparts of the question as per our policy.

Answer 1
Ending inventory at retail		$       120,000
Less: Beginning inventory at retail		$          72,000
Addition during the year		$          48,000
Multiply by: Cost-to-retail percentage for 2016 Transaction		60%
Addition during the year At cost		$          28,800
Add: Beginning inventory at Cost		$          36,000
Inventory balance that Harlequin Co. would report in its 12/31/16 balance sheet		$          64,800
Answer 2
Ending inventory at retail		120,000
Divided by factor		1.20
Ending inventory at cost		100,000
Less: Beginning inventory at retail		72,000
Addition		28,000
Beginning inventory		36,000
Increase in inventory during the year (28000*1.20*60%)		20,160
Ending inventory at cost under Dollar value LIFO retails method		56,160
Answer 3
Overstated of Beginning inventory on Jan. 1		$          32,000
Add: understated of ending inventory on Dec. 31		$          62,000
Overstated cost of goods sold for this year was		$          94,000

Answer 4

	sales price	Sales commission (sales price *10%)	Net Realizable value
Skis	180,000	18,000	162,000
Boots	150,000	15,000	135,000
Apparel	120,000	12,000	108,000
Supplies	60,000	6,000	54,000

	cost	Replacement cost	sales price	Net Realizable value	normal profit (sales price *Normal gross profit ratio)
Skis	128,000	120,000	180,000	162,000	36,000
Boots	133,000	130,000	150,000	135,000	30,000
Apparel	90,000	110,000	120,000	108,000	18,000
Supplies	45,000	41,000	60,000	54,000	9,000

	Net Realizable value (celling)	Net Realizable value less normal profit (floor)	Replacement cost	designed market value (middle value of three amount)
Skis	162,000	126,000	120,000	126,000
Boots	135,000	105,000	130,000	130,000
Apparel	108,000	90,000	110,000	108,000
Supplies	54,000	45,000	41,000	45,000

	designed market value	cost	Inventory value
Skis	126,000	128,000	126,000
Boots	130,000	133,000	130,000
Apparel	108,000	90,000	90,000
Supplies	45,000	45,000	45,000

Inventories should valued at lower of designed market value and cost.