The following information was taken from the accounting records of Chicoutimi Lte. and Jonquire Lte. at December

The following information was taken from the accounting records of Chicoutimi Ltée. and Jonquière Ltée. at December 31, 2020. The two companies are competitors.

Required
a. Calculate the gross margin, gross margin ratio, and inventory turnover ratio at December 31, 2020, for:

i. Chicoutimi Ltée.

ii. Jonquière Ltée.

b. During the December 20, 2020, inventory count at Chicoutimi Ltée., $75,000 of inventory shrinkage was identified. It had not been recorded in the inventory account.

i. Prepare the entry to record the inventory shrinkage of $75,000.

ii. Recalculate Chicoutimi’s gross margin, gross margin ratio, and inventory turnover ratio after the adjusting journal entry is made. (Hint: You need to adjust the ending inventory balance for 2020 and the cost of goods sold.)

iii. Describe what happened to Chicoutimi’s gross margin ratio and inventory turnover ratio after adjusting for the inventory shrinkage.

c. Which company do you think is better at managing inventory? Explain your answer.

Transcribed Image Text:

Chicoutimi Ltée. Jonquière Ltée. $ 150,000 200,000 962,500 2,406,250 Ending inventory, Dec. 31, 2019 Ending inventory, Dec. 31, 2020 Cost of goods sold, 2020 Sales for 2020 $ 395,000 425,000 2,460,000 6,150,000