Royal Gorge Company uses the gross profit method to estimate ending inventory an

Question

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 $59,900 The following information for the month of November was available from company records In addition, the controller is aware of $6,500 of inventory that was stolen during November from one of the company's warehouses Required: Calculate the estimated inventory at the end of November, assuming a gross profit ratio of 40%

Explanation / Answer

Royal Gorge Company Calculation of Ending Inventory As on Nov. 30 Beginning Inventory as on Nov. 1            59,900 Add: Purchases          124,000 Less: Purchase Return              5,500          118,500 Add: Freight In              4,400 Cost of goods Available For Sale          182,800 Sales          250,000 less: Sales Return              6,500 Net Sales          243,500 Less: estimated Gross Profit (40% of $243500)            97,400 Cost of Goods Sold          146,100 Estimated Ending Inventory before theft            36,700 Less: Stolen Inventory              6,500 Net Estimated Ending Inventory            30,200

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