Question

Santa Clara Sporting Goods Store installed the retail method of accounting for its merchandise inventory as of January 1, 2011. When you undertook the preparation of the store's financial statements at June 30, 2011, the following data were available:

	Cost	Retail
Inventory, January 1	$28,900	$40,000
Purchases(including freight charges)	86,200	111,800
Purchases returns	1,500	1,800
Markups		15,000
Markdowns		4,000
Net sales		116,000

Required:

1.Prepare a schedule to compute the Santa Clara Sporting Goods Store's June 30, 2011ending inventory under the retail method of accounting for inventories. The inventory is to be valued at cost using the conventional retail method (average cost, lower-of-cost-or-market approximation technique

Answer 1

	Cost price	Retail price
Beginning Inventory	$28,900	$40,000
Net Purchases	$84,700 ($86,200-$1,500)	$110,000 ($111,800-$1,800)
Net Markups		$15,000
Totals	$113,600	$165,000

Cost to retail ratio = $113,600 / $165,000 = 69%

Retail price total	$165,000
Less : Net markdowns	$4,000
Total goods at retail	$161,000
Less : Sales	$116,000
Ending inventory at retail	$45,000

Ending inventory at costs = $45,000 * 69% = $31,050