Cost Retail
Jaffe Co.
Merchandise inventory, February 1 $ 400,000 $ 615,000
Transactions during February:
Purchases (net) 4,055,000 5,325,000
Sales 5,220,000
Sales returns and allowances 120,000
Coronado Co.
Merchandise inventory, May 1 $ 400,000
Transactions during May thru October:
Purchases (net) 3,150,000
Sales 4,850,000
Sales returns and allowances 100,000
Estimated gross profit rate 35%
Instructions
1. Determine the estimated cost of the merchandise inventory of Jaffe Co. on February 28 by the retail method, presenting details of the computations.
2.
a. Estimate the cost of the merchandise inventory of Coronado Co. on October 31 by
the gross profit method, presenting details of the computations.
b. Assume that Coronado Co. took a physical inventory on October 31 and discovered
that $366,500 of merchandise was on hand. What was the estimated loss of inventory
due to theft or damage during May thru October?
Answer:
1.
JAFFE CO.
Cost Retail
Merchandise inventory, February 1 $ 400,000 $ 615,000
Net purchases 4,055,000 5,325,000
Merchandise available for sale $4,455,000 $5,940,000
$4,455,000 Ratio of cost to retail price: $5,940,000 = 75%
Sales $5,220,000
Less sales returns and allowances 120,000
Net sales 5,100,000
Merchandise inventory, February 28, at retail $ 840,000
Merchandise inventory, at estimated cost
($840,000 × 75%) $ 630,000
2.
CORONADO CO.
Cost
a. Merchandise inventory, May 1 $ 400,000
Net purchases 3,150,000
Merchandise available for sale $3,550,000
Sales $4,850,000
Less sales returns and allowances 100,000
Net sales $4,750,000
Less estimated gross profit ($4,750,000 × 35%) 1,662,500
Estimated cost of merchandise sold 3,087,500
Estimated merchandise inventory, October 31 $ 462,500
b. Estimated merchandise inventory, October 31 $ 462,500
Physical inventory count, October 31 366,500
Estimated loss due to theft or damage,
May 1–October 31 $ 96,000