Kenora Supplies has a periodic inventory system and uses the gross margin method of estimating inventories for interim financial statements. The business had the following account balances for the fiscal year ended August 31, 2017:
Inventory: Sep. 1, 2016 .................. $ 136,000
Purchases ................................... 1,180,000
Purchases returns and allowances ........ 36,000
Freight in ................................... 24,000
Sales ........................................ 2,100,000
Sales returns and allowances .............. 50,000
Required
1. Use the gross margin method to estimate the cost of the business's ending inventory, assuming the business has an average gross margin rate of 40 percent.
2. The business has done a physical count of the inventory on hand on August 31, 2017. For convenience, this inventory was calculated using the retail selling prices marked on the goods, which amounted to $169,500. Use the information from Requirement 1 and the gross margin method to calculate the cost of the inventory counted.