Compute ending inventory using conventional retail inventory

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Reference no: EM131800435

Problem

You are audit staff on the yearend audit of Soto Salguera Corp. You observed the client's staff take the physical inventory. Your audit senior told you to run your own computations rather to verify the client's calculations. You have the following information available.


At cost

At retail

Beginning inventory

$180,500

$ 300,000

Net purchases

955,000

1,453,000

Freight-in

15,000


Additional markups


31,000

Additional markup cancellations


14,000

Markdowns


8,000

Employee discounts


2,000

Sales


1,300,000

Physical count of inventory at 12/31, at retail


475,000

1. Compute ending inventory using the conventional retail inventory method as an audit test of the overall reasonableness of the physical inventory count. Round the cost ratio to three decimal places.

2. Note any discrepancies indicated. What factors (list at least three) should you, as the auditor, consider in reconciling any difference in results from your analysis?

3. Suggest the proper accounting treatment (if needed) to deal with the discrepancy.

Reference no: EM131800435

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