CPA REVIEW SCHOOL OF THE PHILIPPINES

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FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

RETAIL METHOD

1. An entity used the retail inventory method to approximate the ending inventory. The following
information is available for the current year:
Cost Retail
Beginning inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase returns 300,000 500,000
Purchase allowances 150,000
Departmental transfer in 200,000 300,000
Net markup 300,000
Net markdown 1,000,000
Sales 9,500,000
Sales discounts 100,000
Employee discounts 500,000
Estimated normal shoplifting losses 600,000
Estimated normal shrinkage 400,000
1. What is the estimated cost of ending inventory using the conservative approach?
a. 2,400,000
b. 2,460,000
c. 3,060,000
d. 2,700,000
2. What is estimated cost of ending inventory using the average cost approach?
a. 2,560,000
b. 2,624,000
c. 3,264,000
d. 2,880,000

2. During the current year, an entity reported the following:

Cost Retail
Beginning inventory 560,000 1,000,000
Purchases 4,000,000 6,200,000
Net sales 5,400,000
During the current year, the selling price of a certain inventory increased from P200 to P300. This
additional markup applied to 5,000 items but was later canceled on the remaining 1,000 items. The
following reductions were made in the retail price:
To meet price competition 50,000
To dispose of overstock 30,000
Miscellaneous reductions 120,000
1. What is the cost of ending inventory using the conventional retail method?
a. 2,000,000
b. 1,320,000
c. 1,220,000
d. 1,200,000
2. What is the cost of ending inventory using the average retail method?
a. 1,240,000
b. 1,260,000
c. 1,216,000
d. downloaded
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3. An entity provided the following information:

Cost Retail
Beginning inventory 1,400,000 2,000,000
Net purchases 5,850,000 8,000,000
Net markup 1,500,000
Net markdown 500,000
Net sales 7,500,000
What is the estimated cost of ending inventory using the FIFO retail approach?
a. 2,275,000
b. 2,375,000
c. 2,310,000
d. 2,205,000

4. An entity provided the following data for the current year:

Cost Retail
Beginning inventory 1,650,000 2,000,000
Net purchases 4,200,000 ?
Net markup 800,000
Net markdown 200,000
Net sales ?
The entity used the average retail inventory to estimate ending inventory. It was determined that
the cost of the ending inventory was P1,950,000. If the entity used the FIFO retail method, the cost
ratio would have been 60%.
1. What was the amount of the net purchases at original retail before markup and markdown?
a. 7,600,000
b. 7,000,000
c. 4,200,000
d. 6,400,000
2. What amount was reported as net sales?
a. 9,000,000
b. 3,000,000
c. 6,000,000
d. 7,000,000
3. What amount was reported as cost of goods sold?
a. 3,900,000
b. 3,000,000
c. 3,600,000
d. 1,800,000

END

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