Henderson Company Uses the Gross Profit Method to Estimate Ending

Essay

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 $122,500. The following information for the month of August was available from company records:

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%.