Question

This TBS will ask you to complete various tasks involved with accounting for inventory. The TBS will provide you with all of the information necessary to do your work.

Lucci Inc. is a retailing firm specializing in high-end merchandise. Each of Lucci's stores uses the retail inventory method by applying the average-LCM alternative. The information below pertains to one department within its Scottsdale, Arizona store. You will use this information to determine ending inventory and cost of goods sold for financial reporting purposes. Assume no inventory shrinkage, and a periodic inventory system.

Beginning inventory of merchandise

Cost, $40,000

Retail, $360,000

Purchases during the period

Cost, $1,000,000

Retail, $10,000,000

Transportation in, $50,000

Transportation out, $32,000

Purchase returns

Cost, $20,000

Retail, $196,000

Net additional markups, $800,000

Net markdowns, $500,000

Sales, $9,800,000

Using the information above, compute the amounts to be reported in the financial statements for ending inventory and cost of goods sold for the department. The spreadsheet below has been started for you. Line items have been entered in column A. In columns B and C, enter appropriate amounts as well as intermediate subtotals directly below the amounts leading to the subtotal. Include the cost to retail calculation as well as your two amounts for financial statement reporting. Round the cost to retail ratio to four decimal places and include the "0" preceding the decimal point. Enter 0 where no other entry is appropriate.

A1 lock copy cut paste
	A	B	C
1	Line Item Description	Cost	Retail
2	Beginning inventory	$40,000
3	Purchases
4	Transportation in
5	Purchases returns
6	Net purchases
7	Net additional markups
8	Cost to retail ratio components
9	Net markdowns
10	Sales
11	Ending inventory, retail
12		Set up Calculation
13	Cost to retail ratio
14	Ending inventory, cost
15	Cost of goods sold

Answer 1

	A					B	C
1	Line item description					Cost	Retail
2	Beginning inventory					40000	360000
3	Purchases					1000000	10000000
4	Transportation in					50000
5	Purchase returns					-20000	-196000
6	Net purchases			(3+4+5)		1030000	9804000
7	Net additional markups						800000
8	Cost to retail ratio component			2+6+7		1070000	10964000
9	Net markdowns						-500000
10	Sales						-9800000
11	Ending inventory,retail			8+9+10			664000
12						Setup calculation
13	Cost to retail ratio			Cost to retail ratio component at cost/Cost to retail ratio component at retail=1070000/10964000=0.097592=9.76%
14	Ending inventory,cost			Ending inventory,retail*Cost to retail ratio=664000*9.76%=$ 64806
15	Cost of goods sold			Sales*Cost to retail ratio=9800000*9.76%=$ 956480