1. Gross Profit Method Royal Gorge Company uses the gross profit method to estim

Question

1. Gross Profit Method Royal Gorge 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 October was $56800. The following information for the month of November was available from company records: The following informaton euired by its bank. d cost of Purchases of $113000 Freight-in of $3800 Sales of $180000 Sales Returns of $4500 Purchase Returns of $2700 In addition, the controller is aware of $8200 of inventory that was stolen during November from one of the company's warehouses.

Explanation / Answer

Answer 1. Beginning Inventory            56,800 Plus: Net Purchases (113000 - 2700)          110,300 Freight-in              3,800 Cost of Goods Available for Sale          170,900 Less: Cost of Goods Sold Net Sales (180000 - 4500)          175,500 Less: Estimated Gross Profit (45% of $175500)          (78,975) Estimated Cost of Goods Sold            96,525 Estimated Inventory before Theft            74,375 Less: Stolen Inventory            (8,200) Estimated Ending Inventory            66,175 Answer 2. Beginning Inventory            56,800 Plus: Net Purchases (113000 - 2700)          110,300 Freight-in              3,800 Cost of Goods Available for Sale          170,900 Less: Cost of Goods Sold Net Sales (180000 - 4500)          175,500 Less: Estimated Gross Profit (175,500 X 100/200)          (87,750) Estimated Cost of Goods Sold            87,750 Estimated Inventory before Theft            83,150 Less: Stolen Inventory            (8,200) Estimated Ending Inventory            74,950

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