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.