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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Hestor Company’s records indicate the following information:

Chapter 8, Problem 5MC, Hestor Companys records indicate the following information: On December 31, 2019, a physical

On December 31, 2019, a physical inventory determined that ending inventory of $600,000 was in the warehouse. Hestor’s gross profit on sales has remained constant at 30%. Hestor suspects some of the inventory may have been taken by some new employees. At December 31, 2019, what is the estimated cost of missing inventory?

  1. a. $100,000
  2. b. $300,000
  3. c. $200,000
  4. d. $700,000

To determine

Calculate the estimated cost of missing inventory at December 31, 2019 by using the gross profit method.

Explanation

Gross Profit Method: Under this method, the beginning inventory is added to the net purchases during the period which results in the goods available for sale. Then, the estimated cost of goods sold is deducted from the goods available for sale to estimate the ending inventory.

Calculate the estimated cost of missing inventory at December 31, 2019 by using the gross profit method:

Estimated Cost of Missing Inventory – Gross Profit method
At December 31, 2019
DetailsAmount ($)Amount ($)
Beginning Inventory 550,000
Add: Purchases 2,250,000
Goods Available for Sale (A) 2,800,000
 

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