Saks Incorporated disclosed the following note regarding its merchandise inventories for its January 31, 2004, financial statements:

Question:

Saks Incorporated disclosed the following note regarding its merchandise inventories for its January 31, 2004, financial statements:

Merchandise Inventories and Cost of Sales
Merchandise inventories are valued by the retail method and are stated at the lower of cost (lastin, first-out “LIFO”), or market and include freight, buying and costs. The Company takes markdowns related to slow moving inventory, ensuring the appropriate inventory valuation. At January 31, 2004 and February 1, 2003, the LIFO value of inventories exceeded market value and, as a result, inventory was stated at the lower market amount.
Consignment merchandise on hand of $127,861 and $112,435 at January 31, 2004 and
February 1, 2003, respectively, is not reflected in the consolidated balance sheets.
a. Why were inventories recorded at market value?
b. What are consignment inventories, and why were they excluded from the valuation?

Balance Sheet
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