Mount Holly, Inc. uses the retail inventory method. The company’s beginning inventory for 2009 had a cost of $250,600 and a selling price of $658,000. During the year, $1,242,320 of purchases was made; these goods were marked up for sale at $1,916,000. Actual 2009 retail sales for the company were $1,752,000.
Required:
(a) What was cost of goods available for sale at cost? At retail?
(b) What was the cost-to-retail percentage for 2009?
(c) Assume that the physical ending inventory showed goods on hand that would retail for $790,000. What is the cost of the ending inventory for balance sheet purposes?
(d) How much inventory loss should be shown on the income statement for 2009?
(e) Assume that Mount Holly, Inc. is an art gallery, selling primarily paintings and sculptures. What is the most likely source of the inventory loss? Explain.
(f) What is meant by the term bonded when discussing employees? Is bonding an effective deterrent to employee theft? What other methods of preventing employee theft might be more effective than bonding?