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| Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of July was $125,500. The following information for the month of August was available from company records: |
| Purchases | $ | 225,000 | |
| Freight-in | 5,800 | ||
| Sales | 356,000 | ||
| Sales returns | 9,600 | ||
| Purchases returns | 4,900 | ||
| In addition, the controller is aware of $10,000 of inventory that was stolen during August from one of the company’s warehouses. |
| Required: | |
| 1. | Calculate the estimated inventory at the end of August, assuming a gross profit ratio of 30%. |
| 2. | Calculate the estimated inventory at the end of August, assuming a markup on cost of 25%. |
Expert Answer
| ans 1 | ||
| Beginning Inventory | $125,500 | |
| Add: net purchases (225000-4900) | 220100 | |
| Freight in | 5800 | |
| cost of goods available for sales | $351,400 | |
| Less: Cost of good sold | ||
| Net sales N (356000-9600) | 346400 | |
| Less: estimated gross profit (346400*30%) | 103920 | |
| Estimated Cost of good sold | -242480 | |
| Estimated cost of inventory before theft | $108,920 | |
| Less: stolen inventory | 10000 | |
| estimated ending inventory | $98,920 | |
| ans 2 | ||
| Beginning Inventory | $125,500 | |
| Add: net purchases (225000-4900) | 220100 | |
| Freight in | 5800 | |
| cost of goods available for sales | $351,400 | |
| Less: Cost of good sold | ||
| Net sales N (356000-9600) | 346400 | |
| Less: estimated gross profit (351400*25%) | $87,850 | |
| Estimated Cost of good sold | -258550 | |
| Estimated cost of inventory before theft | $92,850 | |
| Less: stolen inventory | 10000 | |
| estimated ending inventory | $82,850 |
