Cost Retail Jaffe Co. Merchandise inventory, February 1 $ 400,000 $ 615,000 Transactions during February: Purchases (net)4,055,000 5,325,000 Sales 5,100,000 Coronado Co. Merchandise inventory, May 1 $ 400,000 Transactions during May through October: Purchases (net)3,150,000 Sales 4,750,000 Estimated gross profit rate 35%
Instructions
1. Determine the estimated cost of the merchandise inventory of Jaffe Co. on February 28 by the retail method, presenting details of the computations.
2.
a. Estimate the cost of the merchandise inventory of Coronado Co. on October 31 by the gross profit method, presenting details of the computations.
b. 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?
Answer:
1.
Cost Retail
Merchandise inventory, February 1 $ 400,000 $ 615,000
Net purchases4,055,000 5,325,000
Merchandise available for sale $4,455,000 $5,940,000
$4,455,000
$5,940,000
Sales5,100,000
Merchandise inventory, February 28, at retail$ 840,000
Merchandise inventory, at estimated cost
($840,000 × 75%)$ 630,000
2.
Cost
a. Merchandise inventory, May 1$ 400,000
Net purchases3,150,000
Merchandise available for sale$3,550,000
Sales$4,750,000
Less estimated gross profit ($4,750,000 × 35%) 1,662,500
Estimated cost of merchandise sold3,087,500
Estimated merchandise inventory, October 31 $ 462,500
b. Estimated merchandise inventory, October 31 $ 462,500
Physical inventory count, October 31366,500
Estimated loss due to theft or damage,
May 1–October 31$ 96,000