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nimrod23
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Posted: 10 Jul 2008 at 14:52 \| IP Logged

The following items were included in Opal Co.'s inventory account at December 31, 1992:

Merchandise out on consignment, at sales price, including 40%
   markup on selling price   $40,000
Goods purchased, in transit, shipped F.O.B. shipping point    36,000
Goods held on consignment by Opal   27,000

By what amount should Opal's inventory account at December 31, 1992, be reduced?

Choice "d" is correct. The 40% markup and the goods held on consignment (not belonging to Opal) must be eliminated to record inventory at cost. The $36,000 of goods shipped FOB shipping point should be included in inventory (title has passed to Opal). 40% Вґ $40,000 = $16,000 plus $27,000 = $43,000.

i was just wondering why they calculated the 40% markup to be eliminated as 40% x 40 = 16.   doesnt that make the inventory 40-16 = 24. if you apply a 40% markup to 24, you get 33.6. unless i am mistaken somewhere.

thanks.

Would be CPA
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Posted: 10 Jul 2008 at 15:58 \| IP Logged

Because in the question it says "40% mark up on the selling price".If this would be on cost the calculation would be different.

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randeep
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Posted: 01 Aug 2008 at 21:00 \| IP Logged

1.Hutch, Inc. uses the conventional retail inventory method to account for inventory. The following information relates to 1991 operations:
Average
Cost Retail
Beginning inventory and
purchases $600,000 $920,000
Net markups 40,000
Net markdowns 60,000
Sales 780,000
What amount should be reported as cost of sales for 1991?

2.Union Corp. uses the first-in, first-out retail method of inventory valuation. The following information is available:
Cost Retail
Beginning inventory $12,000 $30,000
Purchases 60,000 110,000
Net additional markups 10,000
Net markdowns 20,000
Sales revenue 90,000
If the lower of cost or market rule is disregarded, what would be the estimated cost of the ending inventory ?

Can anyone explain ?

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nimrod23
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Posted: 01 Aug 2008 at 21:33 \| IP Logged

can you give us the answer? i skipped over this topic.

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randeep
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Posted: 01 Aug 2008 at 21:43 \| IP Logged

Answers

1) 525,000

2)24000

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