On January 1, 2024, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2024 and 2025 are as follows: Beginning inventory Purchases Purchase returns Freight-in Net markups Net markdowns Net sales to customers Sales to employees (net of 30% discount) Normal spoilage Price Index: January 1, 2024 December 31, 2024 December 31, 2025 2024 Cost $ 147,000 498,000 4,500 6,000 1.00 1.12 1.25 Retail $ 210,000 Cost 678,000 $ 650,000 4,500 5,950 4,450 458,000 17,500 5,800 3,400 5,000 2025 Required: 2. Estimate the 2024 ending inventory and cost of goods sold using the average cost retal method. Retail $ 904,000 2,000 10,200 7,200 706,000 17,500 6,100

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.