Question

# James store uses the retail inventory method to estimate ending inventory and cost of goods sold....

James store uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for the year 2016 is as follows: beginning inventory \$180,000 (cost) 300,000 (retail); purchase 1,479,000 (cost) 2,430,000 (retail); fright-in 30,000; net markups 90,000; net markdowns 45,000; net sales 2,340,000. Estimate the ending inventory and cost of goods sold for 2016, apple the conventional retail method (avg, LCM)

Retail Value of goods Available for sale during the period

= Retail value of beginning inventory + Retail value of goods purchased + Net markups – net markdowns

= \$300,000 + 2,430,000 + \$90,000 - \$45,000

=\$2,775,000

Cost to retail Ratio = Cost of beginning inventory & goods purchased including incidental costs/Retail value of beginning inventory & goods purchased during the year + net markups – net markdowns

= (\$180,000+\$1,479,000+\$30,000)/(\$300,000+\$2,430,000+\$90,000-\$45,000)

=\$1,689,000/\$2,775,000 = 0.609

Estimated cost of ending inventory

=( Retail value of goods available for sale – Goods Sold during the period) x Cost to retail Ratio

= (\$2,775,000 - \$2,340,000) x 0.609

= \$435,000 x 0.609

=\$264,915

Estimated Cost of Goods Sold

= Cost of Beginning Inventory + Cost of Goods Purchased – Estimated cost of ending Inventory

=\$180,000 + \$1,479,000 - \$264,915

= \$1,394,085

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