Question

Exercise 2 (Darnell): Darnell 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 July was $127,000. They estimate a gross profit percentage of 30%. The following information for the month of August was available from company records: Purchases $228,000 Freight-in 6,100 Sales 359,000 Sales returns 9,900 Purchases returns 5,200 In addition, the controller is aware of $10,000 of inventory that was stolen during August from one of the company’s warehouses. What is the estimated inventory at the end of August?

Answer 1

Calculate estimated inventory

Beginning inventory		127000
Cost of goods purchased
Purchases	228000
Less: Purchase return	-5200
Add: Freight in	6100
Cost of goods purchased		228900
Cost of goods available for sale		355900
Less: Cost of goods sold
Net sales	349100
Less: Gross profit percentage	-104730
Estimated cost of goods sold		-244370
Estimated inventory		111530
Stolen		-10000
Estimated inventory at the end of august		101530