# (Question and Answer): Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold when

 Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of July was \$125,500. The following information for the month of August was available from company records:
 Purchases \$ 225,000 Freight-in 5,800 Sales 356,000 Sales returns 9,600 Purchases returns 4,900
 In addition, the controller is aware of \$10,000 of inventory that was stolen during August from one of the company’s warehouses.
 Required: 1. Calculate the estimated inventory at the end of August, assuming a gross profit ratio of 30%.

 2. Calculate the estimated inventory at the end of August, assuming a markup on cost of 25%.

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 ans 1 Beginning Inventory \$125,500 Add: net purchases (225000-4900) 220100 Freight in 5800 cost of goods available for sales \$351,400 Less: Cost of good sold Net sales N (356000-9600) 346400 Less: estimated gross profit (346400*30%) 103920 Estimated Cost of good sold -242480 Estimated cost of inventory before theft \$108,920 Less: stolen inventory 10000 estimated ending inventory \$98,920 ans 2 Beginning Inventory \$125,500 Add: net purchases (225000-4900) 220100 Freight in 5800 cost of goods available for sales \$351,400 Less: Cost of good sold Net sales N (356000-9600) 346400 Less: estimated gross profit (351400*25%) \$87,850 Estimated Cost of good sold -258550 Estimated cost of inventory before theft \$92,850 Less: stolen inventory 10000 estimated ending inventory \$82,850

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