Question

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 20X1: Cost Retail Inventory 1/1/20X1 $ 390,000 $ 650,000 Net purchases for the year 1,402,000 1,835,000 Net markups 75,000 Net markdowns 45,000 Net sales 1,845,000 Applying the conventional retail inventory method, Toso's inventory at December 31, 20X1, is estimated at:

a.$477,392
b.$469,000
c.$395,159
d.$405,035

Answer 1

Answer:

a.$477,392

Explanation:

For computing the ending inventory we need to do following calculations which are shown below:

Under cost method

Goods available for sale:

= Beginning inventory + Net Purchase for the year + Net mark ups - Net markdowns

= $390,000 + $1,402,000 + $0 - $0

= $1,792,000

Under Retail method

Goods available for sale:

= Beginning inventory + Net Purchases for the year  + Net markups - Net markdowns

= $650,000 + $1,835,000 + $75,000 - $45,000

= $2,515,000

Now

Cost to retail ratio is

= $1,792,000 ÷ $2,515,000

= 71.252%

And, Estimated ending inventory under retail

= Goods available for sale at Retail - Net sales

= $2,515,000 - $1,845,000

= $670,000

So, Estimated ending inventory under cost is

= Estimated ending inventory at retail × Cost to retail ratio

= $670,000 × 71.252%

= $477,392