Answered: The retail amount should be $1,035,000,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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.5.A company using the conventional retail method has the following information for the current year's operations: Cost Retail Beginning inventory $ 100,000 $ 150,000 Purchases 500,000 800,000 Net markups 85,000 Net markdowns 35,000 Net sales 750,000 Management calculates the cost-to-retail percentage as 60%, equal to cost of $600,000 ($100,000 + $500,000) divided by retail of $1,000,000 ($150,000 + $800,000 + $85,000 – $35,000). Which of the following statements is correct? A) The cost-to-retail percentage should be calculated as cost of $600,000 divided by retail of $750,000 (Net sales). B) The retail amount should be $1,035,000, excluding net markdowns. C) The cost and retail amounts should not include beginning inventory of $100,000 and $150,000, respectively. D) The retail amount should be $950,000, excluding net markups and net markdowns.

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