A Company Uses the Conventional Retail Method to Estimate the Cost

question 26

Multiple Choice

A company uses the conventional retail method to estimate the cost of ending inventory for interim financial statements. Which of the following responses describe the correct treatment of markups and markdowns in the calculation of the cost-to-retail ratio?

• A) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { add } & \text { subtract } \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { add } & \text { exclude } \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { subtract } & \text { add } \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | c | }
• \hline \text { Markups } & \text { Markdowns } \\
• \hline \text { exclude } & \text { exclude } \\
• \hline
• \end{array}\]

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Definitions:

Single-Line Consolidation

A method of accounting in which an investor records the value of its investment in a subsidiary at cost plus any changes due to the investor's share in the subsidiary's income or loss, displayed in a single line in financial statements.

Equity Method

An accounting technique used by a company to record investments in other companies, where the investment is initially recorded at cost and subsequently adjusted for the investor’s share of the investee’s net assets and income.

Investment Balance

The amount currently held in investment accounts, reflecting gains, losses, and contributions to date.

Consolidations

The process of combining multiple financial statements or businesses into one comprehensive financial report or corporate entity, typically to provide a more unified view of financial performance or corporate structure.