Question

At December 31, 2020, the following information was available from Pharoah Co.'s accounting records:

Cost Retail
Inventory, 1/1/20 $139000 $195000
Purchases 633000 955000
Additional markups 34000
Available for sale $772000 $1184000
Sales for the year totaled $1050000. Markdowns amounted to $9200. Under the lower-of-cost-or-market retail inventory method, Pharoah's inventory at December 31, 2020 was:______.
a. $81120.
b. $93080.
c. $267800.
d. $87100.

Answer 1

Pharoah's inventory at December 31, 2020 was $81,120. The right answer is a.

Step-by-step explanation:

In order to calculate Pharoah's inventory at December 31, 2020 we would have to calculate the following formula:

Ending inventory at cost=Ending inventory at retail*Cost to Retail ratio

Cost to Retail ratio=$772,000 ÷ $1,184,000

Cost to Retail ratio= 0.65

Ending inventory at retail=($1,184,000 – $9,200 – $1,050,000)

Ending inventory at retail=$124,800

Therefore, Ending inventory at cost=$124,800× 0.65

Ending inventory at cost=$81,120

Pharoah's inventory at December 31, 2020 was $81,120