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 $59,300. The following information for the month of November was available from company records:

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

Required:
1. Calculate the estimated inventory at the end of November, assuming a gross profit ratio of 30%.
2. Calculate the estimated inventory at the end of November, assuming a markup on cost of 100%.

Purchases $ 118,000 Freight-in 3,800 Sales 220,000 Sales returns 9,000 Purchases returns 8,000

Explanation / Answer

1.

2.

Beginning inventory (from records) $59,300 Plus: Net purchases ($118,000 – 8,000) 110,000 Freight-in (from records) 3,800 Cost of goods available for sale 173,100 Less: Cost of goods sold: Net sales ($220,000 – 9,000) $211,000   Less: Estimated gross profit of 30% (63,300)   Estimated cost of goods sold (147,700) Estimated cost of inventory before theft 25,400 Less: Stolen inventory (12,000) Estimated ending inventory $13,400

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