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Retail Inventory Method Harmes Company is a clothing store that uses the retail inventory method. The following information relates to its operations during the year:

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Retail Inventory Method Harmes Company is a clothing store that uses the retail inventory method. The following information relates to its operations during the year: Cost Retail Inventory, January 1 $32,500 $65,000 130,000 219,339 Markups (net) Markdowns (net) Sales 180,000 Required: Purchases 5,000 4,000 1. Compute the ending inventory by the retail inventory method for the following cost flow assumption: FIFO. Round the cost-to-retail ratio to three decimal places. HARMES COMPANY Calculation of ending inventory by retail inventory method FIFO Cost 130,000 Retail 219.339 Purchases Add: Markups (net). Less: Markdowns (net) 5.000 4,000 1.30.000 220,339 0.589 32.500 65,000 Cost-to-retail ratio: Beginning inventory Goods available for sale Less: Sales Ending inventory 162.500 2852339 180.000 62,044,6 X 105.139 2. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Average cost. Round the cost-to-retail ratio to three decimal places. HARMES COMPANY Calculation of ending inventory by retail inventory method Average Cost Cost 32.500 Retail 65,000 219,339 130,000 Beginning inventory Purchases Add: Markups (net) Less: Markdowns (net) - Goods available for sale 5.000 4,000 162.500 285,339 Cost-to-retail ratio 0.569 Less Sales 180,000 Ending inventory 39,937,89 105,339 3. Compute the ending inventory by the retail inventory method for the following cost flow assumption: LIFO. Round the cost-to-retail ratio to three decimal places. HARMES COMPANY Calculation of ending inventory by retail inventory method LIFO Cost Retail 65,000 32.500 OS 130,000 219,339 5.000 4.000 Beginning inventory Cost-to-retail ratio Purchases Add: Markups (net) Less: Markdowns (net) Goods available for sale Cost-to-retail ratio Less: Sales Ending inventory 162,500 285,339 0.569 X 180.000 55.452.8 X 105.339 4. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Lower of cost or market (based on average cost). Round the cost-to- retail ratio to three decimal places. HARMES COMPANY Calculation of ending inventory by retail inventory method Lower of Cost or Market (based on average cost) Cost 32.500 Retail 65,000 Beginning inventory Purchases Addi Markups (net) 120,000 219,119 5.000 162.500 29,139 0.561 X 4,000 Cost-to-retail ratio Lessi Markdowns (net) Goods available for sale Less: Sales Ending Inventory 285.239 180,000 56.51. X 101.199 X

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