Selected data on merchandise inventory, purchases, and sales for Jaffe Co. and Coronado Co. are as follows:

Selected data on merchandise inventory, purchases, and sales for Jaffe Co. and Coronado Co. are as follows:

Cost Retail Jaffe Co. Merchandise inventory, February 1 $  400,000 $  615,000 Transactions during February: Purchases (net)4,055,000 5,325,000 Sales 5,100,000 Coronado Co. Merchandise inventory, May 1 $  400,000 Transactions during May through October: Purchases (net)3,150,000 Sales 4,750,000 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 through October?

Answer:

1.

Cost Retail

Merchandise inventory, February 1 $ 400,000 $ 615,000

Net purchases4,055,000 5,325,000

Merchandise available for sale $4,455,000 $5,940,000

$4,455,000

$5,940,000

Sales5,100,000

Merchandise inventory, February 28, at retail$ 840,000

Merchandise inventory, at estimated cost

($840,000 × 75%)$ 630,000

2.

Cost

 a. Merchandise inventory, May 1$ 400,000

Net purchases3,150,000

Merchandise available for sale$3,550,000

Sales$4,750,000

Less estimated gross profit ($4,750,000 × 35%) 1,662,500

Estimated cost of merchandise sold3,087,500

Estimated merchandise inventory, October 31 $ 462,500

 b. Estimated merchandise inventory, October 31 $ 462,500

Physical inventory count, October 31366,500

Estimated loss due to theft or damage, 

May 1–October 31$ 96,000