Chapter 9: Question 19Q (page 442)
Of what significance is inventory turnover to a retail store?
Inventory turnover indicates the number of times the company's average inventory is converted into sales in the given period.
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GROUPWORK (Retail, LIFO Retail, and Inventory Shortage) Late in 2014, Joan Seceda and four other investors took the chain of Becker Department Stores private, and the company has just completed its third year of operations under the ownership of the investment group. Andrea Selig, controller of Becker Department Stores, is in the process of preparing the year-end financial statements. Based on the preliminary financial statements, Seceda has expressed concern over inventory shortages, and she has asked Selig to determine whether an abnormal amount of theft and breakage has occurred. The accounting records of Becker Department Stores contain the following amounts on November 30, 2017, the end of the fiscal 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, the actual inventory at retail is $115,000. Instructions (a) Describe the circumstances under which the retail inventory method would be applied and the advantages of using the retail inventory method. (b) Assuming that prices have been stable, calculate the value, at cost, of Becker Department Stores’ ending inventory using the last-in, first-out (LIFO) retail method. Be sure to furnish supporting calculations. Problems 487 488 Chapter 9 Inventories: Additional Valuation Issues (c) Estimate the amount of shortage, at retail, that has occurred at Becker Department Stores during the year ended November 30, 2017. (d) Complications in the retail method can be caused by such items 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 the retail inventory method.
The financial statements of ConAgra Foods, Inc.’s 2014 annual report disclose the following information. (in millions) 2014 2013 2012 Year-end inventories \(2,201 \)2,077 \(2,341 Fiscal Year 2014 2013 Net sales \)17,703 $15,427 Cost of goods sold 13,980 11,864 Net income 315 786Instructions Compute ConAgra’s (a) inventory turnover and (b) the average days to sell inventory for 2014 and 2013.
Assume that Darcy Industries had the following inventory values. Inventory cost (on December 31, 2017) \(1,500 Inventory market (on December 31, 2017) \)1,350 Inventory net realizable value (on December 31, 2017) \(1,320 Under IFRS, what is the inventory carrying value on December 31, 2017? (a) \)1,500. (b) \(1,570. (c) \)1,560. (d) $1,320
LaTour Inc. is based in France and prepares its financial statements in accordance with IFRS. In 2017, it reported cost of goods sold of \(578 million and average inventory of \)154 million. Briefly discuss how analysis of LaTour’s inventory turnover (and comparisons to a company using GAAP) might be affected by differences in inventory accounting between IFRS and GAAP.
Davenport Department Store converted from the conventional retail method to the LIFO retail method on January 1, 2017, and is now considering converting to the dollar-value LIFO inventory method. During your examination of the financial statements for the year ended December 31, 2018, management requested that you furnish a summary showing certain computations of inventory cost for the past 3 years. Here is the available information. 1. The inventory at January 1, 2016, had a retail value of \(56,000 and cost of \)29,800 based on the conventional retail method. 2. Transactions during 2016 were as follows. Cost Retail Purchases \(311,000 \)554,000 Purchase returns 5,200 10,000 Purchase discounts 6,000 Gross sales revenue (after employee discounts) 551,000 Sales returns 9,000 Employee discounts 3,000 Freight-in 17,600 Net markups 20,000 Net markdowns 12,000 3. The retail value of the December 31, 2017, inventory was \(75,600, the cost ratio for 2017 under the LIFO retail method was 61%, and the regional price index was 105% of the January 1, 2017, price level. 4. The retail value of the December 31, 2018, inventory was \)62,640, the cost ratio for 2018 under the LIFO retail method was 60%, and the regional price index was 108% of the January 1, 2017, price level. Instructions (a) Prepare a schedule showing the computation of the cost of inventory on hand at December 31, 2016, based on the conventional retail method. (b) Prepare a schedule showing the recomputation of the inventory to be reported on December 31, 2016, in accordance with procedures necessary to convert from the conventional retail method to the LIFO retail method beginning January 1, 2017. Assume that the retail value of the December 31, 2016, inventory was \(60,000. (c) Without prejudice to your solution to part (b), assume that you computed the December 31, 2016, inventory (retail value \)60,000) under the LIFO retail method at a cost of $33,300. Prepare a schedule showing the computations of the cost of the store’s 2017 and 2018 year-end inventories under the dollar-value LIFO method.
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