Question

Retail Inventory Method The following data were available from Hegge Department Store's records for the year ended December 31, 2016 At Cost At Retail Merchandise inventory, January 1, 2016 Purchases Markups Markdowns Sales $90,000 $140,000 344,000 470,000 -10,000 40,000 - 500,000 Required: Using the retail method, what is the estimate of the merchandise inventory at December 31, 2016, valued at the lower of cost or market? Round the cost-to-retail ratio to three decimal places. HEGGE DEPARTMENT STORE Calculation of ending inventory by retail inventory method (Lower of cost or market) For the year ended December 31, 2016

Answer 1

Answer

	Cost	Retail
Merchandise Inventory jan 1 2016	$                90,000	$             140,000
Purchases	$              344,000	$             470,000
Mark ups		$               10,000
	$              434,000	$             620,000
LESS: Markdown		$               40,000
LESS: Sales		$             500,000
Merchandise Inventory 31 Dec 2016 at retail		$               80,000
Ending Inventory at Cost = [ 80000 x (434000/620000)]	$                56,000

Ending Inventory at Retail market price = $ 80000
Ending Inventory at Cost = $ 56,000

Answer: Following Lower of Cost or Retail, Merchandise Inventory on Dec 31, 2016 = $ 56,000