Part V 16 Points Retail Inventory Method When you undertook

Part V. (16 Points) Retail Inventory Method When you undertook the preparation of the annual financial statements for Smokey, Inc. at December 31, 2017, the following data were available: At Cost $145,600 430,400 At Retail nventory, January 1, 2017 Purchases, net Markups, net Markdowns, net Net Sales $197,000 577,000 126,000 30,000 670,000 REQUIRED: Compute the estimated ending inventory at cost as of December 31, 2016, using the retail method which approximates lower of cost or market should be in good form with all amounts clearly labeled. Your solution

Solution

Solution         

Smokey Inc

Determination of ending inventory value at cost as at December 31, 2016 using the retail method:

Cost

Retail

Beginning Inventory

$145,600

$197,000

Net Purchases

$430,400

$577,000

Net Markups

$126,000

Total

$576,000

$900,000

Deduct:

Net Markdowns

$30,000

Sales Revenue

$670,000

Ending Inventory at retail

$200,000

Cost to retail ratio = (cost/retail) x 100

= (576,000/900,000) x 100 = 64%

Value of ending inventory at cost as at December 31, 2016 = $200,000 x 64% = $128,000

The value of ending inventory at cost as at December 31, 2016 approximates to lower of cost ($128,000) or market ($200,000).

	Cost	Retail
Beginning Inventory	$145,600	$197,000
Net Purchases	$430,400	$577,000
Net Markups		$126,000
Total	$576,000	$900,000
Deduct:
Net Markdowns		$30,000
Sales Revenue		$670,000
Ending Inventory at retail	$200,000