Response to the following problem:
The following data are taken from the records of the Harper Promotions Ltd.:
|
Opening inventory
|
|
Transportation-in
|
$ 500
|
|
At retail
|
$ 7,000
|
Purchase returns
|
|
|
At cost
|
5,000
|
At retail
|
2,000
|
|
Purchases
|
|
At cost
|
1,500
|
|
At retail
|
25,000
|
Sales
|
22,000
|
|
At cost
|
16,000
|
Sales Returns
|
1,000
|
Required:
1. a. Calculate ending inventory at retail.
b. Calculate the cost of goods available at cost divided by cost of goods available at retail.
c. Calculate the ending inventory at cost.
2. Calculate the ending inventory at cost using the gross profit method. Assume a gross profit rate of 35 per cent.
3. Explain why the ending inventory is different under the two methods.