Part 1: Gross Profit Method
Horton, Inc. suffered an inventory loss due to a flood. The following information is available to you.
Beginning inventory $100,000
Net purchase 400,000
Sales 400,000
Inventory salvaged from flood 50,000
Instructions:
Use the gross profit method for estimating inventory to determine the loss due to the flood, assuming (a) gross profit is 25% of sales, and (b) gross profit is 25% of the cost of goods sold.
Part 2: Retail Inventory Method The records of Greene Company report the following data for the month of April.
Sales $204,000 Purchases (at cost) $ 96,000
Sales returns 4,000 Purchases (at sales price) 176,000
Additional markups 20,000 Purchase returns (at cost) 4,000
Markup cancellations 3,000 Purchase returns (at sales price) 6,000
Markdowns 18,600 Beginning inventory (at cost) 60,000
Markdown cancellations 5,600 Beginning inventory (at sales price) 93,000
Freight on purchases 2,000
Instructions: Compute the ending inventory by the conventional retail inventory method.