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25 March, 03:42

A company uses the retail method to estimate inventories. The following information is for the first six months of the current year: beginning inventory at cost and retail were $70,000 and $100,000 respectively, net purchases at cost and retail were $270,000 and $360,000, respectively, and sales during the first six months totaled $320,000. What is the estimated cost of goods sold at the end of the six-month period using the LIFO retail method?

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  1. 25 March, 04:06
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    The correct answer is $240,000.

    Explanation:

    According to the scenario, given data are as follows:

    Beginning inventory at cost = $70,000

    Beginning inventory at retail = $100,000

    Net purchases at cost = $270,000

    Net purchases at retail = $360,000

    Total sales = $320,000

    According to the LIFO method.

    Particulars Cost Retail Cost/Retail Ratio

    Beginning inventory $70,000 $100,000 70%

    Net purchases $270,000 $360,000 75%

    Total Inventory $340,000 $460,000

    Total sales $320,000

    Ending inventory (Estimated)

    ($360,000-$320,000) * 75% $30,000

    $70,000 * 70% $70,000

    Ending inventory at cost $100,000

    Estimated cost of goods sold $240,000.

    Hence the correct answer is $240,000.
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