Question

The records of Earthly Goods provided the following information for the year ended December 31, 2020.

	At Cost			At Retail
January 1 beginning inventory	$	466,350		$	922,150
Purchases		3,184,200			6,393,700
Purchase returns		51,800			118,350
Sales					5,485,700
Sales returns					44,100

Required:
1. Prepare an estimate of the company’s year-end inventory by the retail method. (Round all calculations to two decimal places.)

2. Under the assumption the company took a year-end physical inventory at marked selling prices that totalled $1,674,800, prepare a schedule showing the store’s loss from theft or other causes at cost and at retail.

Answer 1

Requirement 1:

		Cost ($)	Cost to retail ratio	Retail ($)
a	Beginning inventory	466,350		922,150
b	Cost of Purchases	3,184,200		6,393,700
c	Purchase returns	(51,800)		(118,350)
d	Goods available for sale	3,598,750	50%	7,197,500
e	Net Sales (Sales - Sales return)			(5,441,600)
f	Estimated ending inventory			1,755,900

Net Sales: = Sales - Sales return = 5,485,700 - 44,100 = 5,441,600

Cost to retail ratio	Estimate Ending inventory at cost
= Goods available for sale (Cost) / Goods available for sale (Retail) =3,598,750 / 7,197,500 = 50%	= ending inventory at retail × cost to retail ratio = 1,755,900 * 50% = 877,950

Requirement 2:

	At cost	At retail
	Retail x 50%
Estimated inventory	877,950	1,755,900
Physical inventory	837,400	1,674,800
Inventory shortage	40,550	81,100