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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Retail method

A business using the retail method of inventory costing determines that merchandise inventory at retail is $775,000. If the ratio of cost to retail price is 66%, what is the amount of inventory to be reported on the financial statements?

To determine

Calculate the amount of inventory to be reported on the financial statements under retail method.

Explanation

Retail method: This method of estimating cost of inventory requires cost and retail prices to be maintained for goods available for sale. The ending inventory cost is estimated by converting ending inventory at retail using ratio of cost to retail price.

The ending inventory cost under retail method is calculated as follows:

Ending inventory = (Merchandise inventory atx

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