Question

Selected data on inventory, purchases, and sales for Jaffe Co. and Coronado Co. are as follows:

	Cost		Retail
Jaffe Co.
Inventory, February 1	$400,000		$615,000
Transactions during February:
Purchases (net)	4,055,000		5,325,000
Sales			5,100,000
Coronado Co.
Inventory, May 1	$400,000
Transactions during May through October:
Purchases (net)	3,150,000
Sales	4,750,000
Estimated gross profit rate	35%

Required:

1. Determine the estimated cost of the inventory of Jaffe Co. on February 28 by the retail method, presenting details of the computations.

Jaffe Co.
Estimated Cost of Inventory
February 28
		Cost	Retail
		$	$
		$	$
Ratio of cost to retail price:	%
			$
			$

2a. Estimate the cost of the inventory of Coronado Co. on October 31 by the gross profit method, presenting details of the computations.

Coronado Co.
Estimated Cost of Inventory
October 31
		Cost
		$
		$
	$
		$

2b. Assume that Coronado Co. took a physical inventory on October 31 and discovered that $366,500 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during May through October?
$

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Answer 1

1	Estimated cost of the Inventory of Jaffe co on Feb 28 by the retail method
			Cost ($)	Retail ($)
	Inventory - Feb 1		400000	615000
	Add: Purchases		4055000	5325000
	Cost of goods available for sale		4455000	5940000
	Ratio of cost to retail price		0.75
	(4455000/5940000)
	Cost of goods available for sale		4455000	5940000
	Less Sales			5100000
	Inventory - Feb 28 (A)			840000
	Ratio of cost to retail price (B)			0.75
	Cost of ending Inventory (A) x (B)		630000
2a	Estimated cost of the inventory of Coranado Co on October 31 by the Gross Profit Method
			Cost ($)
	Inventory - May 1		400000
	Add Purchases		3150000
	Cost of goods available		3550000
	Less: Cost of goods sold		3087500
	(4750000 x 65%)
	Estimated cost of inventory October 31		462500
2b	If the merchandise on hand on October 31 was $366500, then estimated loss of inventory is $ 96000
	i.e.(462500-366500)