Eaton Couses the Retail Inventory Method to Estimate Its Inventory for for Interim

question 17

Multiple Choice

Eaton Co.uses the retail inventory method to estimate its inventory for interim statement purposes.Data relating to the computation of the inventory at July 31, 2007, are as follows: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\\\text { Inventory, 2/1/07 } & \$ 200,000 & \$ 250,000 \\\text { Purchases } & 1,000,000 & 1,575,000 \\\text { Markups, net } & & 175,000 \\\text { Sales } & & 1,750,000 \\\text { Estimated normal shoplifting losses } & & 20,000 \\\text { Markdowns, net } & & 110,000\end{array}$ Under the lower-of-cost-or-market method, Eaton's estimated inventory at July 31, 2007 is

• A)$72,000.
• B)$84,000.
• C)$96,000.
• D)$120,000.

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Definitions:

Face Value

The nominal or dollar value printed on a bond, stock, or other financial instrument, representing the value at issuance and the value to be repaid at maturity.

Zero-Coupon Bond

A financial security that does not pay periodic interest but is sold at a discount from its face value, and the investor receives the face value at maturity.

Maturity

The date when the principal or nominal amount of a financial instrument, such as a bond or loan, becomes due and payable.

Par Value

The nominal or face value of a bond, stock, or coupon as stated by the issuer, typically not related to its market value.