Question

Estimating Ending Inventory

REST, Inc. maintains a large warehouse for storing inventory. Unfortunately, the warehouse and all of its contents were badly damaged due to a fire started by an employee who had recently been laid off. Fortunately for the company, the local fire department was able to put out the fire before all of the inventory was lost.

You have been asked to use company records to determine the amount of merchandise lost in the fire. The following information is from the main office records: NOTE: Please round all of your percentage calculations to the nearest 1%. For example, .167 (16.7%) would be rounded to .17 (17%).

	Cost	Retail
Beginning Inv.	$950,000	$2,536,500
Purchases	$4,987,500	$13,665,750
Purchase Discount	$74,813	$187,031
Purchase Returns	$124,688	$361,594
Freight-in	$498,750
Markups		$1,425,000
Markdown cancellations		$1,140,000
Markdowns		$2,850,000
Employee discounts		$17,100
Sales (net)		$10,925,000
Average Cost Markup	200%
Cost of inventory still on hand and undamaged:
		$526,300

Using the Retail Inventory Method (RIM), what was REST’s Ending Inventory at Retail value before the fire?

Answer 1

Inventory Lost In Fire     =	Ending Inventory less Cost of Inventory still on hand & undamaged
=	$ 1637814 - $ 526300
=	$ 11,11,514.00