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In: Accounting

Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold...

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 $122,000. The following information for the month of August was available from company records: Purchases $ 218,000 Freight-in 5,100 Sales 349,000 Sales returns 8,900 Purchases returns 4,200 In addition, the controller is aware of $12,000 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 25%. 2. Calculate the estimated inventory at the end of August, assuming a markup on cost of 25%.

Solutions

Expert Solution

Ques 1
Beginning inventory 122000
Add:net purchases 213800
(218000-4200)
Freight in 5100
Cost of goods available for sale 340900
Less:cost of goods sold
Net sales 340100
(349000-8900)
Less:estimated gross profit -85025 -255075
Estimated cost of inventory before theft 85825
Less:stolen inventory -12000
Estimated ending ivnentory 73825
Ques 2
Beginning inventory 122000
Add:net purchases 213800
(218000-4200)
Freight in 5100
Cost of goods available for sale 340900
Less:cost of goods sold
Net sales 340100
(349000-8900)
Less:estimated gross profit(1/4 th on means 1/5th on sales) -68020 -272080
Estimated cost of inventory before theft 68820
Less:stolen inventory -12000
Estimated ending ivnentory 56820

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