Henderson Company uses the gross profit method to estimate ending inventory and

Question

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 $117,500. The following information for the month of August was available from company records:

In addition, the controller is aware of $12,000 of inventory that was stolen during August from one of the company’s warehouses.

    

    

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 $117,500. The following information for the month of August was available from company records:

Explanation / Answer

Notes for undertanding :

Answer 1

Calculation of estimated inventory at the end of August (gross profit ratio = 25 %)

Answer 2

Calculation of estimated inventory at the end of August (markup on cost of 25% or Gross Profit= 20 %)

Deatils Amount ($) Total Amount ($) Beginning Inventory 117,500 Add: Net Purchase ($209,000 - $3,300) 205,700 Add:  Freight-in 4,200 = Cost available for sales 327,400 Net Sales ($340,000 - $8,000) 332,000 Less : Estimated Gross profit ($332,000 * 25 %) (83000 ) = Estimated Cost of goods sold (249,000) Less : Stolen Inventory (12,000) Estimated ending inventory 66,400

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