Question

Alquist Company uses the retail method to estimate its ending inventory. Selected information about its year 2024 operations is as follows: January 1, 2024, beginning inventory had a cost of $210,000 and a retail value of $260,000. Purchases during 2024 cost $1,467,000 with an original retail value of $2,330,000. Freight costs were $21,000 for incoming merchandise. Net additional markups were $240,000 and net markdowns were $170,000. Based on prior experience, shrinkage due to shoplifting was estimated to be $26,000 of retail value. Merchandise is sold to employees at a 20% of selling price discount. Employee sales are recorded in a separate account at the net selling price. The balance in this account at the end of 2024 is $360,000. Sales to customers totaled $1,860,000 for the year. Required: 1. Estimate ending inventory and cost of goods sold using the conventional retail method.

a. Ending Inventory: $576,680; Cost of Goods Sold: $1,505,320
b. Ending Inventory: $576,680; Cost of Goods Sold: $1,603,320
c. Ending Inventory: $628,680; Cost of Goods Sold: $1,451,320
d. Ending Inventory: $628,680; Cost of Goods Sold: $1,549,320

Answer 1

The ending inventory is $628,680 and the cost of goods sold is $1,451,320.

Step-by-step explanation:

The conventional retail method can be used to estimate the ending inventory and cost of goods sold. To calculate the ending inventory, we add the beginning inventory to the sum of the purchases, plus the net additional markups, and subtract the net markdowns, employee sales, and shoplifting estimate. The ending inventory is then multiplied by the cost-to-retail ratio to determine the cost of goods sold.

In this case, the ending inventory would be $628,680 and the cost of goods sold would be $1,451,320 (option c).