Telfer Company, your client, manufactures paint. The company$$s president, Maria Saurez, has decided to open a retail store to sell paint as well as wallpaper and other supplies that would be purchased from other suppliers. She has asked you for information about the conventional retail method of pricing inventories at the retail store.

Instructions

Prepare a report to the president explaining the retail method of pricing inventories. Your report should include the following points.

$1.$ Description and accounting features of the method.

$2.$ The conditions that may distort the results under the method.

$3.$ A comparison of the advantages of using the retail method with those of using cost methods of inventory pricing.

$4.$ The accounting theory underlying the treatment of net markdowns and net markups under the method.

$2.$ Analysis and Problem$-$Solving Skills

When you undertook the preparation of the financial statements for Telfer Company at January $31,2023,$ the following data were available:

At Cost At Retail

Inventory, February $1,2022$ $$70,800$ $ $98,500$

Markdowns $35,000$

Markups $63,000$

Markdown cancellations $20,000$

Markup cancellations $10,000$

Purchases $219,500294,000$

Sales revenue $335,000$

Purchases returns and allowances $4,3005,500$

Sales returns and allowances $10,000$

Instructions

Compute the ending inventory at cost as of January $31,2023,$ using the retail method which approximates lower of cost or market. Your solution should be in good form with amounts clearly labeled.

$3.$ Financial Reporting Presentation

How the result of $2$ above is reported in the Balance Sheet