Henderson Company uses the ross profit method to estimate endinginventory and cost of goods sold when preparing monthly financialstatements required by its bank. Inventory on hand at the end ofJuly was $122,500. The following information for the month ofAugust is available from company records:
Purchases of $219,000
Freight-in of $5,200
Sales of $350,000
Sales returns of $9,000
Purchase returns of $4,300
In addition, the controller is aware of $10,000 of inventorythat was stolen during August from one of the company'swarehouses.
Required:
1) Calculate the estimated inventory at the end ofAugust assuming a gross profit ratioof 30%
2) Calculate the estimated inventory at the end ofAugust, assuming a markup on cost of 25%
Henderson Company uses the ross profit method to estimate endinginventory and cost of goods sold when preparing monthly financialstatements required by its bank. Inventory on hand at the end ofJuly was $122,500. The following information for the month ofAugust is available from company records:
Purchases of $219,000
Freight-in of $5,200
Sales of $350,000
Sales returns of $9,000
Purchase returns of $4,300
In addition, the controller is aware of $10,000 of inventorythat was stolen during August from one of the company'swarehouses.
Required:
1) Calculate the estimated inventory at the end ofAugust assuming a gross profit ratioof 30%
2) Calculate the estimated inventory at the end ofAugust, assuming a markup on cost of 25%
Related questions
Late in 2014, Joan Seceda and four other investors took thechain of Becker Department Stores private, and the company has justcompleted its third year of operations under the ownership of theinvestment group. Andrea Selig, controller of Becker DepartmentStores, is in the process of preparing the year-end financialstatements. Based on the preliminary financial statements, Secedahas expressed concern over inventory shortages, and she has askedSelig to determine whether an abnormal amount of theft and breakagehas occurred. The accounting records of Becker Department Storescontain the following amounts on November 30, 2017, the end of thefiscal year.
Cost | Retail | |
|---|---|---|
Beginning inventory | $ 68,000 | $100,000 |
Purchases | 255,000 | 400,000 |
Net markups | 50,000 | |
Net markdowns | 110,000 | |
Sales revenue | 320,000 |
According to the November 30, 2017, physical inventory, theactual inventory at retail is $115,000.
Instructions:
(a)Describe the circumstances under which the retail inventorymethod would be applied and the advantages of using the retailinventory method.
(b)Assuming that prices have been stable, calculate the value,at cost, of Becker Department Storesâ ending inventory using thelast-in, first-out (LIFO) retail method. Be sure to furnishsupporting calculations.
(c)Estimate the amount of shortage, at retail, that has occurredat Becker Department Stores during the year ended November 30,2017.
(d)Complications in the retail method can be caused by suchitems as (1) freight-in costs, (2) purchase returns and allowances,(3) sales returns and allowances, and (4) employee discounts.Explain how each of these four special items is handled in theretail inventory method.
