Question

# Royal Gorge Company uses the gross profit method to estimate ending inventory and cost of goods...

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 \$59,500. The following information for the month of November was available from company records:

 Purchases \$ 120,000 Freight-in 4,000 Sales 230,000 Sales returns 10,000 Purchases returns 9,000

In addition, the controller is aware of \$13,000 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 40%.
2. Calculate the estimated inventory at the end of November, assuming a markup on cost of 100%

#### Homework Answers

Answer #1

1.

 Amount (\$) Beginning inventory \$59,500 Add: Purchase 120,000 Freight In 4,000 Less: Purchase return 9,000 Goods available for sale 174500 Less: Stolen during the year 13,000 161500 Less: cost of goods sold 132,000 Estimated ending inventory \$29,500
 Sales \$230,000 Less: sales return 10000 Net sales 220,000 Less: gross profit @40% 88000 Cost of goods sold \$132,000

2.

 Amount (\$) Beginning inventory \$59,500 Add: Purchase 120,000 Freight In 4,000 Less: Purchase return 9,000 Goods available for sale 174500 Less: Stolen during the year 13,000 161500 Less: cost of goods sold 110,000 Estimated ending inventory \$51,500
 Sales \$230,000 Less: sales return 10000 Net sales 220,000 Less: markup on cost @100% 110000 Cost of goods sold \$110,000
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