Auditors are examining the accounts of Acton Retail Corporation. They were present when Acton's personnel physically counted the Acton inventory; however, the auditors made their own tests. Acton's records provided the following data for the current year:

Inventory at 31 December (per physical count valued at retail) = $ 475,000

Required:
1. Compute the ending inventory at lower of cost or NRV as an audit test of the overall reasonableness of the physical inventory count.
2. Note any discrepancies indicated. What factors should the auditors consider in reconciling any difference in results from the analysis?
3. What accounting treatment (if any) should be accorded the discrepancy?

Transcribed Image Text:

At Retail At Cost $ 300,000 1,453,000 Inventory, 1 January Net purchases Freight-in Additional markups Additional markup cancellations Markdowns Employee discounts Sales $180,500 955,000 15,000 31,000 14,000 8,000 2,000 1,300,000