Selected data on merchandise inventory, purchases, and sales for Celebrity Tan Co. and Ranchworks Co. are as follows:

Selected data on merchandise inventory, purchases, and sales for Celebrity Tan Co. and Ranchworks Co. are as follows:

Cost Retail Celebrity Tan Merchandise inventory, August 1 $  300,000 $  575,000 Transactions during August: Purchases (net)2,149,000 3,375,000 Sales 3,170,000 Ranchworks Co. Merchandise inventory, March 1 $  880,000 Transactions during March through November: Purchases (net)9,500,000 Sales15,800,000 Estimated gross profit rate38%

Instructions

1. Determine the estimated cost of the merchandise inventory of Celebrity Tan Co. on August 31 by the retail method, presenting details of the computations.

2. a. Estimate the cost of the merchandise inventory of Ranchworks Co. on November 30 by the gross profit method, presenting details of the computations.

 b. Assume that Ranchworks Co. took a physical inventory on November 30 and discovered that $369,750 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during March through November?

Answer:

1.

Cost Retail

Merchandise inventory, August 1 $ 300,000 $ 575,000

Net purchases2,149,000 3,375,000

Merchandise available for sale $2,449,000 $3,950,000

$2,449,000

$3,950,000

Sales3,170,000

Merchandise inventory, August 31, at retail$ 780,000

Merchandise inventory, at estimated cost

($780,000 × 62%)$ 483,600

2.

Cost

 a. Merchandise inventory, March 1$ 880,000

Net purchases9,500,000

Merchandise available for sale$10,380,000

Sales$15,800,000

Less estimated gross profit ($15,800,000 × 38%) 6,004,000

Estimated cost of merchandise sold9,796,000

Estimated merchandise inventory, November 30 $ 584,000

 b. Estimated merchandise inventory, November 30 $ 584,000

Physical inventory count, November 30369,750

Estimated loss due to theft or damage, 

March 1–November 30$ 214,250