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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

RETAIL INVENTORY METHOD The following information is provided by Raynette’s Pharmacy for the last quarter of its fiscal year ending on March 31, 20--:

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REQUIRED

  1. 1. Estimate the ending inventory as of March 31 using the retail inventory method.
  2. 2. Estimate the cost of goods sold for the time period January 1 through March 31 using the retail inventory method.

Requirement 1 & 2.

To determine

Estimate the amount of ending inventory and the cost of goods sold for the time period as of March 31 using the retail inventory method.

Explanation

Retail inventory method: This method is like a gross profit method. It is depends on the relationship between cost and selling price of the product , for the purpose of estimate the value of ending inventory and cost of goods sold.

In simple, retail inventory method is to estimate the amount of ending inventory by subtracting sales from the goods available for sale. It is liable to provide more accurate estimate compare to the gross profit method.

Estimate the amount of ending inventory and the cost of goods sold for the time period as of March 31 using the retail inventory method:

Retail Inventory Method
DetailsCost ($)Retail ($)
Beginning inventory, January 1, 20--32,00052,000
Add:  Net purchase during period176,000268,000
Goods available for sale208,000320,000
Less: Net sales for the period (260,000)
Estimated ending inventory at retail $60,000
        Estimated ending inventory at cost(39,000) 
Estimated cost of goods sold$169,000 

Table (1)

Working notes:

Calculate cost-to-retail percentage:

Cost-to-retail percentage }(Goods available for sale at costGoods available for sale at retail<

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