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In: Accounting

Flint Company Limited, which follows ASPE, uses the gross profit method to estimate inventory for monthly...

Flint Company Limited, which follows ASPE, uses the gross profit method to estimate inventory for monthly reports. Information follows for the month of May:

Inventory, May 1 $ 364,000
Purchases 730,000
Freight–in 52,000
Sales 1,270,000
Sales returns 75,100
Purchase discounts 11,100

Calculate the estimated inventory at May 31, assuming that the gross profit is 25% of sales.

Estimated inventory, May 31 $

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Calculate the estimated inventory at May 31, assuming that the markup on cost is 25%.

Estimated inventory, May 31 $

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Expert Solution

Answer- The estimated inventory at May 31 =$238725.

Explanation- Ending inventory of August = {(Opening inventory+ Net purchases+ Freight-in +Gross profit}-Net Sales

= {($364000 +$718900 +$52000)+ ($1194900*25%)}- $1194900

= ($1134900+$298725)- $1194900

= $238725

Where- Net Sales = Sales - Sales returns

= $1270000 - $75100

= $1194900

Net Purchases = Purchases-Purchases discounts

= $730000 - $11100

= $718900           

Answer- The estimated inventory at May 31 =$178980.

Explanation- Ending inventory of August = {(Opening inventory+ Net purchases+ Freight-in +Gross profit}-Net Sales

= {($364000 +$718900 +$52000)+ ($1194900*20%)}- $1194900

= ($1134900+$238980)- $1194900

= $178980

Where- Net Sales = Sales - Sales returns

= $1270000 - $75100

= $1194900

Net Purchases = Purchases-Purchases discounts

= $730000 - $11100

= $718900           

Gross profit of 25% of cost = 20% of sales


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