Question1 Ayayai Inc. uses the retail inventory method to estimate ending invent

Question

Question1 Ayayai Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2018. Inventory, October 1, 2018 At cost At retail $52,300 78,100 Purchases (exclusive of freight and returns) 272,816 416,800 16,300 At cost At retail Freight-in Purchase returns 5,700 8,200 9,000 2,000 3,600 9,800 397,700 At cost At retail Markups Markup cancellations Markdowns (net) Normal spoilage and breakage Sales revenue (a) Using the conventional retail method, prepare a schedule computing estimated lower-of-cost-or-market inventory for October 31, 2018. (Round ratios for computational purposes to 0 decimal places, e-9 78% and final answer to 0 decimal places, eg. 28,987) Ending inventory at lower-of-cost-or-market

Explanation / Answer

Schedule of computing Closing Inventory as per Conventional Retail Method Cost Retail Opening Inventory $              52,300 $           78,100 Purchase $        272,816 $    416,800 Less: $          (5,700) $           267,116 $       (8,200) $         408,600 Freight in $              16,300 Mark up $         9,000 Less: Markup Cancellation $       (2,000) $              7,000 Normal Spoilage & Brokerage $           (9,800) Total $           335,716 $         483,900 Less: markdowns $           (3,600) Less: Sales $       (397,700) $           82,600 Cost-to-retail ratio = 335716/483900 = 69% Ending Inventory at lower of cost or market ($ 82600*69%)   = $           56,994

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