Gonera Company operates a large discount store and uses the retail method to estimate the cost of ending inventory. Recently, the company has had unusually heavy inventory losses, which management suspects have been due to shoplifting or employee pilferage. To estimate the amount of the loss, the company has taken a physical inventory and will compare the results with the estimated cost of inventory. Data from Gonera’s accounting records are as follows:

REQUIRED

1. Using the retail method, prepare a schedule to estimate the dollar amount of the store’s month-end inventory at cost.

2. Use the store’s cost to retail ratio to reduce the retail value of the physical inventory to cost.

3. Calculate the estimated amount of inventory shortage at cost and at retail.

4. Many retail chains use the retail method because they find it an efficient way to operate. Why do you think they find this method efficient?

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At Cost $205,952 286,932 (8,172) 3,800 At Retail $297,200 434,000 (12,800) October 1 beginning inventory Purchases returns and allowances Freight-in Sales Sales returns and allowances October 31 physical inventory at retail 436,732 (3,732) 249,800