Question

In: Accounting

You are auditing the records of Lin Corp. The company took a physical inventory under your observation. However, the valuations have not been completed.

You are auditing the records of Lin Corp. The company took a physical inventory under your observation. However, the valuations have not been completed. The records of the company provide the following data: sales, $400,000 (gross); returned sales, $17,500 (returned to stock); purchases (gross), $250,000; beginning inventory, $160,000; freight in, $8,000; and purchase returns and allowances, $7,000. The gross margin last period was 25% of net sales; you anticipate that it will average 30% for the year under audit.

Required:

Estimate the cost of the ending inventory and the cost of sales using the gross margin method. Show all calculations.

Expert Solution

Cost of goods available for sale:

Beginning inventory.................................................................... $160,000

Purchases..................................................................................... $250,000

Freight-in..................................................................................... 8,000

258,000

Less: Purchase returns and allowances............................. 7,000 251,000

Cost of goods available for sale.................................................. 411,000

Deduct estimated cost of goods sold:

Sales revenue............................................................................... 400,000

Less: Returns.............................................................................. 17,500

Net sales................................................................................. 382,500

Less: Estimated gross margin ($382,500 × 30%)............. 114,750 267,750

Estimated cost of ending inventory.................................... $143,250

Junaid answered 11 months ago

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