Question

Harmes Company begin operations in late 2019 and adopted the conventional retail method. Because there was no beginning inventory for 2019 and no markdowns during 2019, the ending inventory for 2019 was $14,000. The following data is provided from there accounting records for 2020:

	Cost	Retail
Inventory, January 1, 2020	$14,000	$20,000
Sales Revenue		80,000
Net Markups		9,000
Net Markdowns		1,600
Purchases	58,800
Freight-in	7,500
Estimated theft		2,000

Instructions: Prepare a schedule to compute the ending inventory by the conventional retail method. You must show computations

Answer 1

Ending Inventory at retail	=	$       26,400
Ending Inventory at cost	=	$       19,272
Workings:
	Cost	Retail
Beginning Inventory	$       14,000	$       20,000
Purchases	$       58,800	$       81,000
Freight	$         7,500
Net Markups	0	$         9,000
	$       80,300	$   1,10,000
Net Markdowns		$        -1,600
Sales		$     -80,000
Estimated theft		$        -2,000
Ending Inventory at retail		$       26,400
Cost to retail ratio	=	$80300 / $110000
		73%
Ending Inventory at cost	=	Ending Inventory at retail X 73%
	=	$26400 X 73%
	=	$       19,272