Question

QS 6-12 Estimating inventories—gross profit method LO6

The inventory of Sixth Avenue Department Store was destroyed by a fire on September 10, 2020. The following 2020 data were found in the accounting records

Jan. 1 inventory ............................................................... $180,000

Jan. 1–Sept. 10 purchases (net) ................................. $342,000

Jan. 1–Sept.10 sales ..................................................... $675,000

2020 estimated gross profit rate ................................ 42%

QS 6-13 Estimating inventories—gross profit method LO6

During the past two months, management of Wallace Lake Computing Supplies was closely watching inven-tory levels due to suspected shrinkage caused by unknown factors. The physical count on July 31, the end of the current month, shows $48,000 of merchandise actually on hand. The accounting records for prior periods indicate that gross profit should be 30% of the $565,000 net sales for July. Inventory at June 30 was actually $65,000 and July purchases were $385,500. Calculate the estimated:

a. Ending inventory

Answer 1

QS 6-12

Beginning inventory = $180,000

Purchases = $342,000

Sales = $675,000

Gross profit = Sales x Gross profit rate

= 675,000 x 42%

= $283,500

Cost of goods sold = Sales - Gross profit

= 675,000-283,500

= $391,500

Cost of goods sold = Beginning inventory + Purchases - Ending inventory

391,500= 180,000+342,000-Ending inventory

Ending inventory = $130,500

Inventory lost by fire = $130,500

QS 6-13

Net sales = $565,000

Gross profit rate = 30%

Beginning inventory = $65,000

Purchases = $385,500

Gross profit = Net sales x Gross profit rate

= 565,000 x 30%

= $169,500

Cost of goods sold = Net sales - Gross profit

= 565,000-169,500

= $395,500

Cost of goods sold = Beginning inventory + Purchases - Ending inventory

395,500 = 65,000+385,500-Ending inventory

Ending inventory = $55,000

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