Question

In: Accounting

Hansard Ltd. estimates its quarterly inventory by the retail inventory method. The following data are available for the

Hansard Ltd. estimates its quarterly inventory by the retail inventory method. The following data are available for the quarter ended 30 June 20X7:

 

Required:

1. Prepare a schedule to compute the estimated inventory at 30 June 20X7.

Solutions

Expert Solution

Requirement 1

 

 

At cost

At retail

Inventory, 1 June

$ 452,000

$ 672,000

+ Purchases

1,039,200

1,880,000

– Purchase returns and allowances

(18,000)

(32,000)

+ Markups (net) ($244,000 – $76,000)

 

 168,000

Retail value goods available for sale

 

2,688,000

– Markdowns (net) ($176,000 – $86,000)

 

 (90,000)

Goods available for sale

1,473,200

$2,598,000

– Sales (net of returns: $2,100,000 – $100,000)

 

 (2,000,000)

Inventory, 30 June, at retail

 

$ 598,000

Inventory, 30 June, at cost:

($598,000 × 55 % cost ratio*)

$ 328,900

 

 

* Cost ratio = $1,473,200 ÷ $2,688,000 = 55%

 

Since the retail method is an estimate, there is no point in carrying the cost ratio out to more than two significant digits.


* Cost ratio = $1,473,200 ÷ $2,688,000 = 55%

 

Since the retail method is an estimate, there is no point in carrying the cost ratio out to more than two significant digits.

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