Question

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 $126,000. The following information for the month of August was available from company records: Purchases Freight-in Sales Sales returns Purchases returns $226,000 5,900 357.000 9,700 5,000 In addition, the controller is aware of $11,000 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 35%. 2. Calculate the estimated Inventory at the end of August, assuming a markup on cost of 25%. 1. Estimated ending inventory Estimated ending inventory 2.

Answer 1

1) Calculate estimated ending inventory

Beginning inventory		126000
Purchases	226000
Purchase return	-5000
Freight in	5900
Cost of purchase		226900
Total goods available for sale		352900
Cost of goods sold (357000-9700)*65%		-225745
Balance		127155
Stolen inventory		-11000
Estimated ending inventory		116155

2) Calculate estimated ending inventory

Beginning inventory		126000
Purchases	226000
Purchase return	-5000
Freight in	5900
Cost of purchase		226900
Total goods available for sale		352900
Cost of goods sold (357000-9700)*100/125		-277840
Balance		75060
Stolen inventory		-11000
Estimated ending inventory		64060