Question

Singularity Products began business on January 1, 2020. During 2020, Singularity recorded the following:

Purchases of inventory, at cost: $400,000
Purchases of inventory, at retail value: $800,000
Net Markups: $200,000
Net Markdowns: $400,000
Sales: $500,000

a. Calculate the balance in ending inventory on December 31, 2020 if Singularity uses the Retail
Inventory – Conventional Method to value inventory. (7 points)

b. What amount of gross profit will Singularity report on its 2020 Income Statement? (7 points)

Answer 1

• Workings

Conventional Retail Method
	Cost	Retail	Cost to Retail Ratio	Working
Beginning Inventory	$                          -	$                          -
Plus: Purchases	$        400,000.00	$        800,000.00
Net Markups		$        200,000.00
	$        400,000.00	$    1,000,000.00
Less: Net MarkDowns		$        400,000.00
Goods Available for sale	$        400,000.00	$        600,000.00
Cost to retail Percentage			40.00%	( 400000 / 1000000 ) x 100
Less: Net Sales		$        500,000.00
Estimated ending inventory at retail		$        100,000.00		600000 - 500000
Estimated ending Inventory at cost	$          40,000.00			100000 x 40%

• Requirement [a]
  Balance in Ending inventory = $ 40,000
• Requirement [b]
  Gross Profits = $ 400000 cost of goods available for sale - $ 40000 ending inventory
  = $ 360,000