Portman Inc. uses the conventional retail inventory method. Expressed in millions of dollars, information about Portman's 2009 inventory account is expressed in the table below: At what amount would Portman record its inventory on its 12/31/09 balance sheet?
A)$150 million
B)$252 million
C)$300 million
D)None of these is correct.

Question

Quizplus · Accepted Answer

Portman uses the conventional retail inventory method. The conventional retail inventory method is a method of estimating the cost of ending inventory by applying a ratio of cost to retail to the retail value of the ending inventory. The cost-to-retail ratio is calculated by dividing the cost of goods available for sale by the retail value of goods available for sale. In this case, the cost of goods available for sale is $300 million and the retail value of goods available for sale is $500 million. Therefore, the cost-to-retail ratio is 60% ($300 million/$500 million). The retail value of the ending inventory is $250 million. Therefore, the cost of the ending inventory is $150 million ($250 million x 60%).