Estimating ending inventory using the Retail Inventory Method

Datema Department Stores 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 2017:

The company records sales net of employee discounts. Discounts for October 2017 totaled $2,000.

Required:

Estimate Datema ending inventory and cost of goods sold for the year using the retail inventory method and the following applications:

1. Conventional (the lower of cost or net realizable value)

Ending Inventory:

Cost of goods sold:

2. Average cost

Ending Inventory:

Cost of goods sold:

3. Assume a department store using the conventional retail inventory method estimates the cost of its ending inventory at $29,000. An accurate physical count reveals only $22,000 of inventory at lower of cost and net realizable value. List the factors that may have caused the difference between computed inventory and the physical count.

Inventory, October 2017 Beginning Inventory Purchases Freight-in Purchases returns Net markups Net markdowns Normal spoilage Abnormal spoilage Sales Sales returns Retail $20,000$ 30,000 148,495 Cost 100,151 5,100 2,100 2,800 2,235 800 4,500 3,500 135,730 5,730 2,000