Problem NO: 8

Fuque Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single

Fuque Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of

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October 2015.

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Inventory, October 1, 2015

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At cost $ 52,000

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At retail 78,000

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Purchases (exclusive of freight and returns)

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At cost 272,000

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At retail 423,000

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Freight-in 16,600

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Purchase returns

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At cost 5,600

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At retail 8,000

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Markups 9,000

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Markup cancellations 2,000

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Markdowns (net) 3,600

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Normal spoilage and breakage 10,000

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Sales revenue 390,000

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Instructions

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(a) Using the conventional retail method, prepare a schedule computing estimated lower-of-cost-ormarket inventory for October 31, 2015.

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(b) A department store using the conventional retail inventory method estimates the cost of its ending inventory as $60,000. An accurate physical count reveals only $47,000 of inventory at lower-of-costor- market. List the factors that may have caused the difference between the computed inventory and the physical count.

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