Question

Gordon Company uses the retail method of inventory costing. The retail value of the ending inventory is $325,000. If the ratio of cost to retail price is 66%, what is the amount of the ending inventory to be reported on the financial statements

Answer 1

Answer:

$214,500.

Explanation:

Inventories are expected to be  reported at the lower of cost and net realizable value. This goes in line with appropriate accounting standard, IAS 2.

In this question,

The cost of the inventory is given as 66% of retail value

= 66% ×  $325,000

=  $214,500.

Retail value = $325,000

Sinec the cost value is lower than retail value, hence the inventory is to be reported at

$214,500.

Answer 2

Answer:

The ending inventory of $214,500 to be reported on the financial statements.

Explanation:

Retail value is the value at which an asset will be sold. Cost to retail value ratio is the ratio of cost of inventory to retail price of that inventory item.

We can calculate the Inventory value reported on the financial statement as follow

Cost to retail value = Cost of Inventory / Retail value of Inventory

66% = Cost of Inventory / $325,000

Cost of Inventory = $325,000 x 66% = $214,500