PR 7-5B Retail method; gross profit method
Selected data on merchandise inventory, purchases, and sales for Segal Co. and Iroquois Co. are as follows:
| Cost | Retail | |
| Segal Co. | ||
| Merchandise inventory, March 1 | $ 298,000 | $ 375,000 |
| Transactions during March: | ||
| Purchases (net) | 4,850,000 | 6,225,000 |
| Sales | 6,320,000 | |
| Sales returns and allowances | 245,000 | |
| Iroquois Co. | ||
| Merchandise inventory, January 1 | $ 300,000 | |
| Transactions during January thru March: | ||
| Purchases (net) | 4,150,000 | |
| Sales | 6,900,000 | |
| Sales returns and allowances | 175,000 | |
| Estimated gross profi t rate | 40% |
Instructions
1. Determine the estimated cost of the merchandise inventory of Segal Co. on March 31 by the retail method, presenting details of the computations.
2. a. Estimate the cost of the merchandise inventory of Iroquois Co. on March 31 by the gross profit method, presenting details of the computations.
b. Assume that Iroquois Co. took a physical inventory on March 31 and discovered that $396,500 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during January thru March?
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