Walters Department Store uses the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 70%. Goods available for sale at retail amounted to $300,000 and goods were sold during the period for $160,000. The estimated cost of the ending inventory is
A) $140,000.
B) $210,000.
C) $98,000.
D) $200,000.

Question

Quizplus · Accepted Answer

The estimated cost of the ending inventory is calculated by subtracting the sales at retail from the goods available for sale at retail, then applying the cost to retail ratio. Here, goods available for sale at retail = $300,000, sales at retail = $160,000, so the ending inventory at retail = $300,000 - $160,000 = $140,000. Applying the cost to retail ratio of 70% (0.70) to the ending inventory at retail gives $140,000 * 0.70 = $98,000.

Walters Department Store Uses the Retail Inventory Method to Estimate