Question

Problem 9-13 Late in 2014, Joan Seceda and four other investors took the chain of Pharoah 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 Pharoah 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 Pharoah Department Stores contain the following amounts on November 30, 2017, the end of the fiscal year. Cost Retail Beginning inventory $67,900 $100,300 Purchases 265,316 408,000 Net markups 49,400 Net markdowns 108,300 Sales revenue 319,300 According to the November 30, 2017, physical inventory, the actual inventory at retail is $125,400.

Assuming that prices have been stable, calculate the value, at cost, of Pharoah Department Stores’ ending inventory using the last-in, first-out (LIFO) retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.) Estimated ending inventory at Cost $

Estimate the amount of shortage, at retail, that has occurred at Pharoah Department Stores during the year ended November 30, 2017. Estimated inventory shortage $

Answer 1

Answer 1:

Estimated ending inventory at Cost L 90,548

Working:

Cost $67,900 $265,316 Beginning Inventory Purchases Net Mark Ups Net Mark downs Net Purchases Goods Available Sales Estimated ending inventory at retails Retail $100,300 $408,000 $49,400 ($108,300) $349,100 $449,400 $319,300 $130,100 $265,316 Cost to retail percentage=265316/349100 =76% $67,900 $100,300 $29,800 Beginning Inventory layer Incremental Increase at retail at cost = $29,800* 76% Estimated ending inventory at LIFO cost $22,648 $90,548

Answer 2:

Estimated Inventory shortage 4,700

Working:

Estimated ending inventory at Retail Actual inventory at retail Estimated Inventory shortage $130,100 $125,400 $4,700