Question

Problem 6-15B Retail inventory method LO6
CHECK FIGURE: 2. Loss at cost = $2,040.27
The records of The Wilke Co. provided the following information for the year ended December 31, 2020:

At Cost At Retail
January 1 beginning inventory ......................... $ 40,835 $ 57,305
Purchases ............................................................... 251,945 383,530
Purchase returns .................................................. 5,370 7,665
Sales ........................................................................ 393,060
Sales returns ......................................................... 2,240

Required
1. Prepare an estimate of the company’s year-end inventory by the retail method. Round all calculations to
two decimal places.
2. Under the assumption the company took a year-end physical inventory at marked selling prices that totalled
$39,275, prepare a schedule showing the store’s loss from theft or other causes at cost and at retail.

Answer 1

Answer to Part 1: Computing estimated year ending inventory by retail method

	Particulars	Amount
	Beginning Inventory	$ 57,305
Add:	Purchases	$ 383,530
Less:	Purchase return	($7,665)
	Cost of goods available for sale	$433,170
Less:	Sales	($393,060)
Add:	Sales return	$2,240
	Estimated year end inventory by retail method	$42,350

Answer to Part 2: Schedule showing the store’s loss from theft or other causes by cost and by retail method

Step 1: Determining cost of goods available for sale both at cost level and retail level

	Particulars	At Cost	At Retail
	Beginning Inventory	$ 40,835	$ 57,305
Add:	Purchases	$251,945	$ 383,530
Less:	Purchases return	($5,370)	($7,665)
	Cost of goods available for sale	$287,410	$ 433,170

Step 2: Calculating Cost to Retail Ratio:

On basis of Cost of goods availabe for sale the cost to retail ratio can be computed as  

This comes out to be 0.6635 or 66.35%

Step 3: Calculating estimated inventory at cost and retail method

	Particulars	Amount
(A)	Estimated Inventory at year end by retail method (as per part 1)	$42,350
(B)	Cost to Retail Ratio (as per step 2)	66.35%
(C) = (A) x (B)	Estimated inventory by cost method	$28,099

Step 4: Determining actual inventory at cost and retail method

Particulars	Amount
(A)	Actual Inventory at selling price (i.e. retail method) (given)	$ 39,275
(B)	Cost to Retail Ratio (as per step 2)	66.35%
(C) = (A) x (B)	Actual inventory by cost method	$26,059

Step 5: Schedule showing store's loss from theft or other causes by cost and retail method

	Particulars	Cost method	Retail method
	Estimated inventory	$28,099 (as per step 3)	$42,350 (part 1)
Less:	Actual Inventory	$26,059 (as per step 4)	$39,275 (Given)
	Store's loss from theft or other cause	$2,040	$3,075