Selected data on inventory, purchases, and sales for Jaffe Co. and Coronado Co.

Question

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

Required:

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

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

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?
$

Check My Work

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%

Explanation / Answer

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)

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