Chapter 7, Problem 7.7BPR

### Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

Chapter
Section

### Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
174 views

# Retail method; gross profit methodSelected 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% Instructions1. 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 de tails 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?

1.

To determine

Retail method

This method of estimating cost of inventory requires cost and retail prices to be maintained for goods available for sale. The ending inventory cost is estimated by converting ending inventory at retail using ratio of cost to retail price.

Gross profit method

This method is use the estimated gross profit for the period to evaluate and ascertain the ending inventory for the period. The gross profit for the period is calculated from the preceding year, which is adjusted for any current period changes in the sales and cost price of the inventory.

To estimate: the cost of merchandise inventory at February 28 of J company.

Explanation

Firstly, the total merchandise available for sale at cost and retail prices is determined. Then ratio of cost to retail ratio is determined by dividing merchandise availabl...

(2.a)

To determine

To estimate: the cost of merchandise inventory as on October 31 of C Company.

(2.b)

To determine

To estimate: the loss of inventory due to theft or damage during May through October.

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