Question

Kiddie World uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the quarter ending September 30, 2021: Cost Retail Beginning inventory $ 370,000 $ 515,000 Net purchases 890,000 1,280,000 Freight-in 54,000 Net markups 55,000 Net markdowns 25,000 Net sales 1,235,000 Estimate ending inventory and cost of goods sold using the conventional method.

Answer 1

Answer:

Ending inventory is $424,045

Cost of goods sold is $889,955

Explanation:

Retail Inventory method is used to estimate the value of inventory using retail price of the unit of inventory.

As per given data

                                                   Cost           Retail

Beginning inventory               $370,000   $515,000

Net purchases                        $890,000   $ 1,280,000

Freight-in                                $54,000

Net markups                                                $55,000

Net markdowns                                           $25,000

Net sales                                                      $1,235,000

Cost of Purchase = 890,000 + 54,000 = $944,000

Retail Price of Purchases = Net Purchases Retail + ( Net Markup ) = $1280,000 + ( 55,000 - 25,000 ) = 1,310,000

Cost to retail Percentage = ( $944,000 / $1,310,000 ) x 100 = 72.06%

Closing Inventory = Purchases + Net Markup - Sales = $1,280,000 + ( $944,000 / $1,310,000 ) - $1,235,000 = $75,000

                                      Retail           Cost

Beginning inventory  $515,000   $370,000

Net purchases           $75,000     $54,045  ( $75,000 x 72.06% )

Ending Inventory       $590,000   $424,045

Closing Inventory = Opening + Purchases - Closing = $370,000 + ( 890,000 + 54,000 ) - 424,045 = $889,955