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Question E9-22

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Intermediate Accounting (Kieso)
Found in: Page 480

Short Answer

The records of Ellen’s Boutique report the following data for the month of April. Sales revenue $99,000 Purchases (at cost) $48,000 Sales returns 2,000 Purchases (at sales price) 88,000 Markups 10,000 Purchase returns (at cost) 2,000 Markup cancellations 1,500 Purchase returns (at sales price) 3,000 Markdowns 9,300 Beginning inventory (at cost) 30,000 Markdown cancellations 2,800 Beginning inventory (at sales price) 46,500 Freight on purchases 2,400 Instructions Compute the ending inventory by the conventional retail inventory method

The ending inventory by conventional retail inventory method equals $20,440.

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Step by Step Solution

Calculation of ending inventory at retail

Calculation of ending inventory at retail is calculated as follows:

Cost

Retail

Beginning inventory

$30,000

$46,500

Purchases

48,000

88,000

Purchase returns

-2,000

-3,000

Freight on purchases

2,400

_________

Totals

78,400

131,500

Add: Net markups

Markups

10,000

Markup cancellations

_______

1,500

8,500

Totals

78,400

140,000

Deduct: Net markdowns

Markdowns

9,300

Markdowns cancellations

2,800

6,500

Sales price of goods available

133,500

Deduct: Net Sales

Sales revenue

99,000

Sales returns

2,000

97,000

Ending inventory at retail

$36,500

Calculation of the cost-to-retail ratio

The cost to retail ratio is calculated as follows:

Calculation of inventory value at cost

Inventory at cost is calculated as follows:

Thus, ending inventory at cost is $20,440.

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