Problems - Gross Profit Method (VALIX)

* fire damaged entire inventory

Inventory - Jan. 1 6,600,000
add: Purchase 3,000,000
Freight in 300,000 3,300,000
TGAS 9,900,000
less: Invty. - Dec. 31 (squeezed) 4,440,000 C.
COGS 5,460,000

Sales 7,800,000
less: COGS 5,460,000
Gross profit (7.8M x 30%) 2,340,000

Inventory - Jan. 1 5,500,000

add: Purchases 4,300,000
less: Pur. Ret. 200,000 4,100,000
TGAS 9,600,000
less: Invty. - Dec. 31 (squeezed) 3,600,000 B.
COGS 6,000,000

Sales 7,500,000
less: COGS (7.5M / 125%) 6,000,000
Gross profit 1,500,000

Inventory - Jan. 1 2,500,000

add: Net purchases 7,500,000
TGAS 10,000,000
less: Invty. - Dec. 31 (squeezed) 1,000,000
COGS 9,000,000

Total Inventory - Dec. 31 1,000,000

less: Undamaged inventory 150,000
Inventory damaged by fire 850,000 D.

Net Sales 15,000,000

less: COGS 9,000,000
Gross profit 6,000,300
*

Inventory - Jan. 1 650,000

add: Net purchases 3,175,000
TGAS 3,825,000
less: Invty - Dec. 31 1,125,000 A.
COGS 2,700,000

Net sales 4,500,000

less: COGS 2,700,000
Gross Profit (4.5 M x 40%) 1,800,000

Beginning inventory 500,000

add: Purchases 2,500,000
TGAS 3,000,000
less: Ending inventory 600,000
COGS 2,400,000

Sales 3,200,000
less: COGS 2,400,000
Gross Profit (3.2M x 25%) 800,000

Physical count 500,000

Inventory per book 600,000
Missing inventory 100,000 B.
Inventory, Jan. 1 650,000
add: Net purchases 2,280,000
TGAS 2,930,000
less: Inventory - Dec. 31 571,000
COGS 2,359,000

Net sales 3,370,000

less: COGS 2,359,000
Gross Profit (3,370K x 30%) 1,011,000

Inventory per book 571,000

Physical count 420,000
Missing inventory 151,000 A.

* entire inventory

Inventory, Jan. 1 520,000

add: Net purchases 4,060,000
TGAS 4,580,000
less: Inventory - Dec. 31 680,000
COGS 3,900,000

Net sales 5,200,000

less: COGS 3,900,000 C.
Gross Profit (5.2M x 25%) 1,300,000
 * entire inventory

Inventory - Jan. 1 550,000

add: Purchases 3,000,000
TGAS 3,550,000
less: Inventory - Dec. 31 750,000
COGS 2,800,000

Net sales 3,640,000

less: COGS (3640K / 130%) 2,800,000 D.
Gross Profit 840,000

T-ACCOUNT (accounts receivable)

Purchases 7,000,000
less: Ending inventory 1,400,000
COGS 5,600,000

Credit sales (5.6M x 140%) 7,840,000

COGS 5,600,000
Gross profit 2,240,000

Accounts receivable
7,840,000 4,000,000
3,840,000 D.
7,840,000 7,840,000
Sales 2,750,000
less: COGS 2,200,000
Gross profit 550,000

Beginning inventory 300,000

add: Purchases (SQUEEZED) 2,080,000 B.
TGAS 2,380,000
less: Ending inventory 180,000
COGS 2,200,000

Net sales 1,800,000

COGS 1,080,000
Gross Profit 720,000

TGAS (SQUEEZED) 1,200,000 A.

less: Ending inventory 120,000
COGS 1,080,000

Beginning inventory 400,000

add: Purchases 4,800,000
TGAS 5,200,000
less: Ending inventory 550,000
COGS 4,650,000

Sales 6,200,000
less: COGS 4,650,000
Gross Profit 1,550,000

Ending inventory 550,000

less: Salable inventory 50,000
Total 500,000
less: Reimbursement (500K x 70%) 350,000
Loss from the explosion 150,000 A.
Sales on account 7,200,000
add: Cash sales 720,000
Total sales 7,920,000
less: COGS (7920K / 120%) 6,600,000 D.
Gross Profit 1,320,000

Total sales 8,160,000

less: COGS 6,800,000 A.
Gross Profit 1,360,000

Total sales 8,640,000

less: COGS 7,200,000 B.
Gross Profit 1,440,000

Inventory - Jun. 1 1,980,000

add: Purchases (SQUEEZED) 6,660,000
TGAS 8,640,000
less: Inventory - Jun. 30 2,040,000
COGS 6,600,000

Inventory - July. 1 2,040,000

add: Purchases (SQUEEZED) 6,920,000 D.
TGAs 8,960,000
less: Inventory - Jul. 31 2,160,000
COGS 6,800,000

Inventory - Aug. 1 2,160,000

add: Purchases
TGAS
less: Aug. 31
COGS 7,200,000
TURNOVER OF ACCOUNTS RECEIVABLE

Inventory - Jan. 1 1,800,000

add: Purchases 4,500,000
TGAS 6,300,000
less: Inventory - Dec. 31 2,700,000 D.
COGS 3,600,000

Net sales (1.1M + 1.3M) / 2 x 5 6,000,000

less: COGS 3,600,000
Gross profit 2,400,000

Inventory - Jan. 1 1,100,000

Purchases (SQUEEZED) 4,700,000
TGAS 5,800,000
less: Inventory - Dec. 31 1,200,000
COGS 4,600,000

Net sales (900K + 1M) / 2 x 8 7,600,000

less: COGS (1.1M + 1.2M) / 2 x 4 4,600,000
Gross Profit 3,000,000 B.
 Net sales 3,600,000
less: COGS 2,160,000
Gross profit 1,440,000

TGAS (SQUEEZED) 2,400,000 B.

less: Ending inventory 240,000
COGS 2,160,000

COMPREHENSIVE PROBLEM
2015
Beginning inventory -
add: Net purchases 5,500,000
TGAS 5,500,000
less: Ending inventory 1,000,000
COGS 4,500,000

Sales 6,000,000
less: COGS 4,500,000
Gross profit 1,500,000
Gross profit rate in 2015 (1.5M / 6M) 25%

2016
Beginning inventory 1,000,000
add: Net purchases 7,500,000
TGAS 8,500,000
less: Ending inventory 2,200,000
COGS 6,300,000

Sales 9,000,000
less: COGS (SQUEEZED) 6,300,000
Gross Profit (9M x 30% 2,700,000
Gross profit rate in 2016 25% + 5%

Sales = 100% Ending inventory 2,200,000

Cost = 70% (500K x 70%) less: Undamage merchandise - 350,000
Pofit = 30% Damaged merch. Est. RV - 10,000
Inventory fire loss 1,840,000 B.
COGS STATEMENT

50% Materials 3,000,000

30% Direct labor 1,800,000 A.
20% Manufacturing OH 1,200,000
100% TMC (4320K / 72%) 6,000,000
less: 10% Goods in process 600,000
90% COGM 5,400,000
less: 20% Finished goods 1,080,000
COGS 4,320,000

Total manufacturing cost 100%

less: Goods in process 10%
Cost of goods manufactured 90%
less: Finished goods 18%
COGS 72%

Beginning inventory 400,000

add: Purchases 1,920,000
TGAS 2,320,000
less: Ending inventory 320,000
COGS 2,000,000

Gross sales*** 5,000,000

less: Sales discount 100,000
Net sales 4,900,000
less: COGS 2,000,000
Gross Profit 2,900,000
less: Interest expense 20,000
Administrative expenses* 500,000
Selling expenses** 2,000,000
Net income 380,000 A.
Operating expenses comprises both Administrative and Selling expenses. * Administrative expense = 2M x 25%
** Selling expense = 500K / 1/5 = 2.5M x 4/5
*** Gross sales = 500K / 10%
 by trial and error
Net sales 4,000,000 C.
less: COGS 2,400,000
Gross Profit 1,600,000
Selling expense 400,000
Administrative, excluding BD 600,000
Bad debts expense 120,000
Net income 480,000

loss all inventory

2014
Inventory - Jan. 1 850,000
add: Net purchases 2,640,000
TGAS 3,490,000
less: Ending inventory 1,410,000
COGS 2,080,000

2015
Inventory - Jan. 1 1,410,000
add: Net purchases 2,730,000
TGAS 4,140,000
less: Ending inventory 1,040,000
COGS 3,100,000

Net sales - 2014 & 2015 7,400,000

less: COGS - 2014 & 2015 - 5,180,000
Gross Profit 2,220,000

Gross profit rate 30%

2016 2016
Net sales 5,000,000 Inventory - Jan. 1 1,040,000
COGS 3,500,000 add: Net purchases 4,360,000
Gross profit (5M x 30%) 1,500,000 TGAS 5,400,000
less:Ending inventory (SQUEEZED) 1,900,000 B.
COGS 3,500,000
 2013 - 2015
Net sales 9,000,000
less: COGS 6,750,000
Gross profit 2,250,000
Gross profit rate 25.00%
2016
Net sales 5,600,000
less: COGS (SQUEEZED) 4,200,000
Gross profit (5.6M x 25% 1,400,000

Inventory - Jan. 1, 2016 660,000

add: Net purchases 4,240,000
TGAS 4,900,000
less: COGS 4,200,000
Inventory per book 700,000
less: Partially damaged - 25,000
Undamaged goods - 45,000
Inventory fire loss 630,000 C.
* 60K x 75 = 45K

Inventory - Jan. 1 1,200,000

add: Purchases 2,000,000
TGAS 3,200,000
less: Inventory - Dec. 31 1,100,000
COGS 2,100,000

Sales 3,000,000
less: COGS 2,100,000
Gross Profit 900,000

Accounts receivable
800,000 700,000 A.
3,000,000 2,600,000
500,000
3,800,000 3,800,000
 2015
Beginning inventory 1,260,000
add: Net Purchases 6,570,000
TGAS 7,830,000
less: Ending inventory 2,355,000
COGS 5,475,000

Sales 7,500,000
less: COGS 5,475,000
Gross profit 2,025,000
GROSS PROFIT RATE 27.00%

2016
Beginning inventory 2,355,000
add: Net Purchases 3,300,000
TGAS 5,655,000
less: Ending inventory 2,370,000 A.
COGS 3,285,000

Sales 4,500,000
less: COGS 3,285,000
Gross profit 1,215,000

entire inventory were completely destroyed

Accounts receivable
700,000 1,100,000
9,700,000 900,000
8,400,000
10,400,000 10,400,000

Gross sales 9,700,000

less: COGS (SQUEEZED) 5,820,000
Gross profit (9.7M x 40%) 3,880,000

Inventory - Jan. 1 1,500,000

add: Purchases 5,500,000
TGAS 7,000,000
less: Inventory - Dec. 31 1,180,000 A.
COGS 5,820,000
COST OF INVENTORY SHORTAGE

Sales, net of sales return only 37,000,000

Less: COGS (SQUEEZED) 22,200,000
Gross Profit (37M x 40%) 14,800,000

Beginning inventory 5,000,000

add: Net purchases 23,000,000
TGAS 28,000,000 A.
less: Ending inventory 5,800,000
COGS 22,200,000 B.

Inventory per book 5,800,000

Physical count - 4,000,000
Goods out on consignment - 600,000
Inventory shortage 1,200,000 C.
* 1M x 60%)
significant portion of inventory stolen
2018
Beginning inventory 2,000,000
add: Net purchases 4,800,000
TGAS 6,800,000
less: Ending inventory 1,200,000
COGS 5,600,000
Net sales 8,000,000
less: COGS 5,600,000
Gross profit 2,400,000
Gross profit rate (2.4M / 8M) 30.00%

2019
Beginning inventory 1,200,000
add: Net purchases 4,960,000
TGAS 6,160,000
COGS (7880K - 80K) x 70% 5,460,000
Inventory per book 700,000
less: Inventory not stolen 100,000
Inventory stolen 600,000 B.

Sales 9,600,000
less: COGS (9.6M / 125%) 7,680,000
Gross profit 1,920,000
INVENTORY FIRE LOSS

destroying all inventory

2016-2018
Gross profit 3,200,000
divided by: Sales 8,000,000
Gross profit rate 40.00%

2019
Accounts payable
500,000 400,000
1,600,000 1,700,000 A.
2,100,000 2,100,000

Accounts receivable
480,000 440,000
2,600,000 2,640,000 A.
3,080,000 3,080,000

Sales 2,600,000
less: COGS (SQUEEZED) 1,560,000
Gross Profit (2.6M x 40%) 1,040,000

Inventory - Jan. 1 500,000

add: Purchases 1,700,000
TGAs 2,200,000
less: Inventory - Dec. 31 640,000
COGS 1,560,000

Inventory per book 640,000

less:Goods out on consignment - 120,000
Salvage value of inventory - 20,000
Inventory fire loss 500,000 D.
COGS STATEMENT (working back problems)

completely destroyed

the change in factory supplies is no longer considered because it is

already part of the manufacturing overhead applied

Beginning, Raw materials 1,700,000

add: Purchases 3,800,000
Freight in 200,000
less: Ending raw materials - 2,000,000
Raw materials used 3,700,000 B.
Direct labor 5,000,000
Manufacturing OH 3,000,000
Total Manufacturing cost 11,700,000 C.
add: Goods in process, beg 4,300,000
total 16,000,000
less: Goods in process, end 3,500,000 A.
COGM 12,500,000
add: Finished goods, beg 6,000,000
total 18,500,000
less: Finished goods, end 4,500,000
COGS 14,000,000

Sales 20,000,000
less: COGS 14,000,000 D.
Gross profit 6,000,000
1.) Gross Profit - up to May 31, 2019
Physical Inventory Purchases up to Purchases up to
May. 31, 2019 May. 31, 2019 Jun. 30, 2019
Unadjusted 950,000 6,750,000 8,000,000
a. - 75,000 -
b. - - 10,000 - 15,000
c. - - 20,000 - 20,000
d. - 55,000 - 55,000 -
e. - - -
Adjusted 895,000 6,740,000 7,965,000
 Inventory - July 1, 2018 875,000
add: Purchases up to May 31, 2019 6,740,000
TGAS 7,615,000
less: Physical inventory - May 31, 2019 895,000
COGS - 11 month ended May 31, 2019 6,720,000

Sales for the 11 month ended May 31, 2019 8,400,000

COGS - 11 month ended May 31, 2019 6,720,000
Gross profit 1,680,000 A.
Gross profit rate (1680K / 8,4M) 20.00%

2.) Sales for the month of June

Sales - year ended Jun. 30,2019 9,600,000
Sales for 11 month, May, 31 8,400,000
Sales for the month of June 1,200,000 B.

3.) COGS for the month of June

COGS with profit (1.2M - 100K) x 80% 880,000 ??
COGS without profit 100,000 ??
COGS for the month of June 980,000 C.

4.) Ending inventory for the month of June 30, 2019

Sales with profit (9.5M x 80%) 7,600,000 ??
Sales without profitt 100,000 ??
COGS 7,700,000

Inventory - July 1, 2018 875,000

add: Purchases up to June 30, 2019 7,965,000
TGAS 8,840,000
less: inventory - Jun. 30, 2019 (SQUEEZED) 1,140,000 D.
COGS 7,700,000
 AR/Sales
920,000 1,040,000
600,000 60,000
420,000
1,520,000 1,520,000

Sales for April 600,000

Sales up to March 31 3,600,000
Sales up to April 4,200,000 A.
less: COGS (SQUEEZED) 2,520,000
Gross Profit (4.2M x 40%) 1,680,000

Inventory - Jan. 1 1,880,000

add: Purchases up to April 2,080,000
AP/Purchases TGAS 3,960,000
Purchases 420,000 340,000 April 30 ship less: Inventory - April 30 1,440,000 C.
80,000 Payment COGS 2,520,000
420,000 420,000
Inventory per book 1,440,000
Purchases for April 420,000 less: Goods in transit - 100,000
Purchases up to Mar. 31 1,680,000 Salvaged value - 140,000
Purchases up to April 2,100,000 B. Inventory fire loss 1,200,000 D.
less: Purchase return 20,000
Net purchases 2,080,000
 D.

Net sales 7,280,000

Less: COGS 5,600,000
Gross profit 1,680,000

Inventory - Jan. 1 1,100,000

add: Net purchases 6,000,000
TGAS 7,100,000
less: COGS 5,600,000
Inventory - Sept. 30 1,500,000
less: Salvage value 100,000
Inventory fire loss 1,400,000 B.
Raw materials, beginning 300,000
add: Net Purchases 1,100,000
Raw materials available for use 1,400,000
less: Raw materials, ending 600,000
Raw materials used 800,000
Direct labor 800,000
Manufaturing OH 400,000
Total manufacturing cost 2,000,000
add: Goods in process, beg 1,000,000
total goods in process 3,000,000
less: Goods in process, end 1,300,000 A.
Cost of goods manufactured 1,700,000 B.
add: Finished goods, beg 1,400,000
Goods available for sales 3,100,000
less: Finished goods, end 1,000,000
COGS 2,100,000

Sales 3,000,000
COGS 2,100,000 A.
Gross profit 900,000