Question

Hornacek Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below...

  1. Hornacek Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

Inventory, May 1

$  110,000

Purchases (gross)

620,000

Freight-in

32,000

Sales revenue

1,050,000

Sales returns

70,000

Purchase discounts

18,000

Instructions

(a)  

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales.

(b)  

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.
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