Prob9_4.pdf
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Problem 9‐4
Retail inventory method is used to estimate ending inventory and cost of goods sold Cost Retail Beginning inventory $ 90,000 $180,000 Purchases 355,000 580,000 Freight‐in 9,000 Purchase returns 7,000 11,000 Net markups 16,000 Net markdowns 12,000 Normal spoilage 3,000 Abnormal spoilage 4,800 8,000 Sales 540,000 Sales returns 10,000 Sales are recorded net of employee discounts of $4,000 ©Dr. Chula King All Rights Reserved
Problem 9‐4 (continued) Part 1: Estimate the ending inventory and cost of goods sold using the retail inventory method and average cost Cost Retail Beginning inventory $ 90,000 $180,000 Add: Purchases 355,000 580,000 Freight‐in 9,000 Deduct: Purchase returns (7,000) (11,000) Add: Net markups 16,000 Deduct: Net markdowns (12,000) Abnormal spoilage p g ((4,800) , ) ((8,000) , ) Goods available for sale $422,200 $745,000 Cost/Retail % = $422,200 ÷ $745,000 = 59.36% Deduct: Normal spoilage (3,000) Net sales (540,000 – 10,000) (530,000) Employee discounts (4,000) Ending Inventory at retail $208,000 Ending inventory at cost (59.36% x $208,000) (123,469) Cost of goods sold $318,731
©Dr. Chula King All Rights Reserved
Problem 9‐4 (continued) Part 2: Estimate the ending inventory and cost of goods sold using the retail inventory method and conventional (average, LCM) Cost Retail Beginning inventory $ 90,000 $180,000 Add: Purchases 355,000 580,000 Freight‐in 9,000 Deduct: Purchase returns (7,000) (11,000) Add: Net markups 16,000 Deduct: Abnormal spoilage (4,800) (8,000) $442,200 $ , $757,000 $ , Cost/Retail % = $422,200 ÷ $757,000 = 58.41% Deduct: Net markdowns (12,000) Goods Available for sale $442,200 $745,000 Deduct: Normal spoilage (3,000) Net sales (540,000 – 10,000) (530,000) Employee discounts (4,000) Ending Inventory at retail $208,000 Ending inventory at cost (58.41% x $208,000) (121,493) Cost of goods sold $320,707 ©Dr. Chula King All Rights Reserved
Retail inventory method is used to estimate ending inventory and cost of goods sold Cost Retail Beginning inventory $ 90,000 $180,000 Purchases 355,000 580,000 Freight‐in 9,000 Purchase returns 7,000 11,000 Net markups 16,000 Net markdowns 12,000 Normal spoilage 3,000 Abnormal spoilage 4,800 8,000 Sales 540,000 Sales returns 10,000 Sales are recorded net of employee discounts of $4,000 ©Dr. Chula King All Rights Reserved
Problem 9‐4 (continued) Part 1: Estimate the ending inventory and cost of goods sold using the retail inventory method and average cost Cost Retail Beginning inventory $ 90,000 $180,000 Add: Purchases 355,000 580,000 Freight‐in 9,000 Deduct: Purchase returns (7,000) (11,000) Add: Net markups 16,000 Deduct: Net markdowns (12,000) Abnormal spoilage p g ((4,800) , ) ((8,000) , ) Goods available for sale $422,200 $745,000 Cost/Retail % = $422,200 ÷ $745,000 = 59.36% Deduct: Normal spoilage (3,000) Net sales (540,000 – 10,000) (530,000) Employee discounts (4,000) Ending Inventory at retail $208,000 Ending inventory at cost (59.36% x $208,000) (123,469) Cost of goods sold $318,731
©Dr. Chula King All Rights Reserved
Problem 9‐4 (continued) Part 2: Estimate the ending inventory and cost of goods sold using the retail inventory method and conventional (average, LCM) Cost Retail Beginning inventory $ 90,000 $180,000 Add: Purchases 355,000 580,000 Freight‐in 9,000 Deduct: Purchase returns (7,000) (11,000) Add: Net markups 16,000 Deduct: Abnormal spoilage (4,800) (8,000) $442,200 $ , $757,000 $ , Cost/Retail % = $422,200 ÷ $757,000 = 58.41% Deduct: Net markdowns (12,000) Goods Available for sale $442,200 $745,000 Deduct: Normal spoilage (3,000) Net sales (540,000 – 10,000) (530,000) Employee discounts (4,000) Ending Inventory at retail $208,000 Ending inventory at cost (58.41% x $208,000) (121,493) Cost of goods sold $320,707 ©Dr. Chula King All Rights Reserved
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