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 January was $57,800. The following information for the month of February was available from company records:
Purchases of $120,000
Freight-in of $2,700
Sales of $180,000
Sales Returns of $ 4,400
Purchase Returns of $3,400
In addition, the controller is aware of $8,100 of inventory that was stolen during February from one of the company's warehouses.

Required:

Using the template below, calculate the estimated inventory at the end of February, assuming a gross profit ratio of 45%.

Beginning Inventory $57,800
Plus: Net purchases _____
Freight-in 2,700
Cost of Goods Available for Sale _____
Less: Cost of Goods Sold
Net Sales _____
Less Estimated Gross Profit _____
Estimated Cost of Goods Sold _____
Estimated Inventory before Theft _____
Less: Stolen Inventory 8,100
Estimated Ending Inventory _____

Answer 1

Answer:

The estimated inventory at the end of February is $73400 as shown below

Explanation:

Beginning Inventory $57,800

Plus: Net purchases $120000

Freight-in                     $2,700

Cost of Goods Available for Sale $180500

less: Cost of Goods Sold

Net Sales$180000

Less Estimated Gross Profit $81000

Estimated Cost of Goods Sold $99000

Estimated Inventory before Theft 81500

Less: Stolen Inventory 8,100

Estimated Ending Inventory 73400

Gross profit $180000*45%=$81000