Based on the following data, estimate the cost of the ending merchandise inventory: Sales $9,250,000

Based on the following data, estimate the cost of the ending merchandise inventory:

Sales $9,250,000

Estimated gross profit rate 36%

Beginning merchandise inventory $  180,000

Purchases (net) 5,945,000

Merchandise available for sale $6,125,000

Answer:

Merchandise available for sale......................................................... $6,125,000

Less cost of merchandise sold [$9,250,000 × (100% – 36%)].................. 5,920,000

Estimated ending merchandise inventory.......................................... $ 205,000

The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:

The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:

Jan. 1 Merchandise inventory $  350,000

Jan. 1–Dec. 31 Purchases (net) 2,950,000

                          Sales                 4,440,000

         Estimated gross profit rate         35%

a. Estimate the cost of the merchandise destroyed.

b. Briefly describe the situations in which the gross profit method is useful.

Answer:

a. Merchandise inventory, January 1$ 350,000 Purchases (net), January 1–December 312,950,000 Merchandise available for sale$3,300,000 Sales, January 1–December 31 $4,440,000 Less estimated gross profit ($4,440,000 × 35%) 1,554,000 Estimated cost of merchandise sold2,886,000 Estimated merchandise inventory, December 31 $ 414,000 b. The gross profit method is useful for estimating inventories for monthly or quarterly financial statements. It is also useful in estimating the cost of merchandise destroyed by fire or other disasters.

On the basis of the following data, estimate the cost of the merchandise inventory at June 30 by the retail method:Cost Retail Merchandise inventory, June 1$

On the basis of the following data, estimate the cost of the merchandise inventory at June 30 by the retail method:

                                                          Cost  |  Retail

June 1 Merchandise inventory $  165,000 | $ 275,000

June 1–30 Purchases (net)       2,361,500 | 3,800,000

June 1–30 Sales                                          3,550,000

Answer:

Cost Retail Merchandise inventory, June 1$ 165,000 $ 275,000 Purchases in June (net)2,361,500 3,800,000 Merchandise available for sale $2,526,500 $4,075,000 $2,526,500 $4,075,000 Sales for June 3,550,000 Merchandise inventory, June 30, at retail price$ 525,000 Merchandise inventory, June 30, at estimated cost ($525,000 × 62%)$ 325,500

There are 2,000 units of the item in the physical inventory at December 31. The periodic inventory system is used.

The units of an item available for sale during the year were as follows:

Jan.  1 Inventory 1,800 units at $108

Mar. 10 Purchase 2,240 units at $110

Aug. 30 Purchase 2,000 units at $116

Dec. 12 Purchase 1,960 units at $120

There are 2,000 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form:

Cost Inventory Method Merchandise Inventory Merchandise Sold a. First-in, first-out $ $ b. Last-in, first-out c. Weighted average cost

Answer:

Merchandise Merchandise Inventory Method Inventory Sold a. FIFO$239,840 $668,160 b. LIFO216,400 691,600 c. Weighted average cost 227,000 681,000 Cost of merchandise available for sale: 1,800 units at $108........................................................................... $194,400 2,240 units at $110........................................................................... 246,400 2,000 units at $116.......................................................................... 232,000 1,960 units at $120......................................................................... 235,200 8,000 units (at an average cost of $113.50)....................................... $908,000 a. First-in, first-out: Merchandise inventory: 1,960 units at $120.......................................................................... $235,200 40 units at $116........................................................................... 4,640 2,000 units...................................................................................... $239,840

Merchandise sold: $908,000 – $239,840......................................................................... $668,160 b. Last-in, first-out: Merchandise inventory: 1,800 units at $108........................................................................... $194,400 200 units at $110......................................................................... 22,000 2,000 units.................................................................................... $216,400

Merchandise sold: $908,000 – $216,400.......................................................................... $691,600 c. Weighted average cost:

Merchandise inventory: 2,000 units at $113.50 ($908,000 ÷ 8,000 units)....................................$227,000 Merchandise sold: $908,000 – $227,000....................................................................... $681,000

Identify the errors in the following schedule of the cost of merchandise sold for the year ended May 31, 2018:

Identify the errors in the following schedule of the cost of merchandise sold for the year ended May 31, 2018:

Cost of merchandise sold: Merchandise inventory, May 31, 2018  . . . . . . . . . . . . . . . . . $    105,000 Cost of merchandise purchased: Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,110,000 Purchases returns and allowances . . . . . . . . . . . . . . . . . . 55,000 Purchases discounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 Freight in  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (22,000) Total cost of merchandise purchased . . . . . . . . . . . .   1,173,000 Inventory available for sale  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,278,000 Merchandise inventory, June 1, 2017  . . . . . . . . . . . . . . . . . . . . .        91,300 Cost of merchandise sold before estimated returns . . . . . . . . $1,186,700 Increase in estimated returns inventory . . . . . . . . . . . . . . . . . . . 43,300 Cost of merchandise sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,230,000

Answer:

1. The schedule should begin with the June 1, 2017, not the May 31, 2018, 

merchandise inventory.

2. Purchases returns and allowances and purchases discounts should be deducted 

from (not added to) purchases.

3. Freight in should be added to (not deducted from) purchases.

4. The merchandise inventory at May 31, 2018, should be deducted from inventory

available for sale to yield cost of merchandise sold before estimated returns.

5. The estimated returns for the year of $43,300 should be deducted from cost of

merchandise sold before estimated returns to yield cost of merchandise sold.

A correct cost of merchandise sold section is as follows:

Cost of merchandise sold:

Merchandise inventory, June 1, 2017$ 91,300

Cost of merchandise purchased:

Purchases$1,110,000

Purchases returns and allowances (55,000)

Purchases discounts(30,000)

Net purchases$1,025,000

Freight in22,000

Cost of merchandise purchased1,047,000

Merchandise available for sale$1,138,300

Merchandise inventory, May 31, 2018(105,000)

Cost of merchandise sold before estimated returns $1,033,300

Increase in estimated returns inventory(43,300)

Cost of merchandise sold$ 990,000