Question

Saved He The records of Diskount Department Stores Inc. provided the following data for 20x5: $820,000 Sales (gross) Sales returns Additional markups Additional markup cancellations Markdowns Purchases: 2,050 9,200 5,100 7,200 At retail 870,000 487,500 At cost Purchase returns: At retail At cost Freight on purchases Beginning inventory: At retail At cost Markdown cancellations 4,100 1750 3,750 82,000 46,000 2.250 Required: 1. Estimate the valuation of the ending Inventory and cost of goods sold using the gross margin method. Last year's gross margin percentage was 52%. Estimated cost of ending inventory Estimated cost of goods sold

Answer 1

Answer
1. Based on last year's gross margin percentage, the current years gross margin should be $ ( 820,000 - 2,050) x 52 % = $ 4,25,334
Cost of Goods Sold = $ 817950 - $ 425334 = $ 3,92,616
Valuation of Ending inventory ( at cost) = Beginning inventory + Purchases ( net) + Freight on purchases - Cost of Goods Sold = $ ( 46,000 + 485750 + 3750 - 392616 ) = $ 142,884
2. Retail Sales Method :
	Cost	Retail
	$	$
Beginning Inventory	$              46,000	$                  82,000
Add : Purchases	$           4,87,500	$               8,70,000
Freight on purchases	$                3,750	-
Purchase Returns	$               -1,750	$                   -4,100
Totals	$           5,35,500	$               9,47,900
Add : Net Markups	-	$                    4,100
Totals	$           5,35,500	$               9,52,000
Deduct Net Markdowns		$                   -4,950
		$               9,47,050
Net Sales		$               8,17,950
Ending Inventory	$              72,619	$               1,29,100
Cost to Retail Ratio = 5,35,500 / 9,52,000 = 56.25 %
Valuation of Ending Inventory at cost = $ 129,100 x 56.25 % = $ 72,619
3. retail method are most accurate in terms of cost method.