Question

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On January 1, 2021, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2021 and 2022 are as follows:

	2021							2022
	Cost			Retail				Cost			Retail
Beginning inventory	$	90,000		$	150,000
Purchases		478,000			730,000			$	511,000		$	760,000
Purchase returns		2,500			3,500				2,200			4,000
Freight-in		6,960							8,000
Net markups					8,500							10,000
Net markdowns					4,000							6,000
Net sales to customers					650,000							680,000
Sales to employees (net of 30% discount)					14,000							17,500
Normal spoilage					5,000							6,600
Price Index:
January 1, 2021		1.00
December 31, 2021		1.03
December 31, 2022		1.06

Required:
3. Estimate the 2021 ending inventory and cost of goods sold using the conventional retail method. (Round your cost-to-retail percentage to 2 decimal places and round your final answers to nearest whole dollar.)

Answer 1

Conventional retail method

	Cost	Retail
Beginning inventory	$90,000	$150,000
Add: Purchases	$478,000	$730,000
Less: Purchase returns	($2,500)	($3,500)
Add: Freight in	$6,960
Net Markups		$8,500
Goods available for sale	$572,460	$885,000
Cost to retail percentage=$572,460/$885,000=64.68%
Less: Net markdowns		($4,000)
Normal spoilage		($5,000)
Net sales($650,000+$14,000)		($664,000)
Employee discounts ($14,000/70% -$14,000)		($6,000)
Estimated Ending inventory at retail		$206,000
Estimated Ending inventory at cost($206,000×64.68%)	$133,241
Estimated cost of goods sold	$439,219

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