Income Tax Fundamentals 2020
38th Edition
ISBN: 9780357391129
Author: WHITTENBURG
Publisher: Cengage
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Textbook Question
Chapter 3, Problem 5P
Business with gross receipts of $25 million or less may treat inventory as nonincidental materials and supplies. Find Regulation Section 1.162-3 and read paragraphs (a)(1) and (a)(2) to help answer the following:
Frank owns an auto repair shop that serves a particular model of auto and so he tends to purchase parts in bulk. Frank is eligible to treat inventory as non-incidental materials and elects to do so. In December of 2019 he purchases 24 oil filters. He uses one to repair an auto in January 2020, and then about 2 per month and ends 2020 with 14 filters. Explain how Frank will treat his oil filter inventory.
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Keller Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,100 would have been the same under either the conventional retail system or the LIFO retail system.
On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.
00Cost00
0 Retail0
Inventory, Jan. 1, 2020
$ 38,100
$ 60,000
Markdowns (net)
13,000
Markups (net)
22,000
Purchases (net)
130,900
178,000
Sales (net)
167,000
Instructions
Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method.
Keller Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company's merchandise was marked down in 2019
and, because there was no beginning inventory, its ending inventory for 2019 of $38,100 would have been the same under either the conventional retail system or the LIFO
retail system.
On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under
both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.
Inventory, Jan. 1, 2020
Markdowns (net)
Markups (net)
Purchases (net)
Sales (net)
Cost
$38,100
(b) Ending inventory LIFO retail method
130,900
Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational
purposes to 2 decimal place, e.g. 78.72% and…
Chapter 3 Solutions
Income Tax Fundamentals 2020
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