Question

The following information appears in Petty Company’s records for the year ended December 31: Inventory, January 1 $ 325,000 Purchases 1,150,000 Purchase returns 40,000 Freight in 30,000 Sales 1,700,000 Sales discounts 10,000 Sales returns 15,000 On December 31, a physical inventory revealed that the ending inventory was only $210,000. Petty’s gross profit on net sales has remained constant at 30 percent in recent years. Petty suspects that some inventory may have been stolen by one of the company’s employees. At December 31, what is the estimated cost of the missing inventory?

Answer 1

Inventory shortage 22,500 dollars

Step-by-step explanation:

December 31: Inventory, January 1 $ 325,000

Purchases $ 1,150,000

Purchase returns $ (40,000)

Freight in $ (30,000)

Total Goods available for sale $ 1,405,000

Sales 1,700,000

Sales discounts (10,000)

Sales returns (15,000)

Net Sales: 1,675,000

Gross profit 30%

COGS 70%

1,675,000 x 70% = 1,172,500

On December 31, a physical inventory revealed that the ending inventory was only $210,000

Total Goods available for sale $ 1,405,000

COGS $ (1, 172,500)

Ending Inventory $ (210,000)

Inventory shortage $ 22,500