Question

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $4,200 Net sales: $71,000 Net purchases: $69,000 The company's gross margin ratio is 25%. Using the gross profit method, the estimated ending inventory value would be:

Answer 1

Answer:

$19,950

Explanation:

The formula for determining the estimated ending inventory value is given below:

estimated ending inventory value=cost of goods available for sale -cost of goods sold

cost of goods available for sale=beginning inventory+purchases

cost of goods available for sale=$4,200+$69,000=$73200

Cost of goods sold=net sales-(net sales*gross margin)

Cost of goods sold=$71000-($71000*25%)=$53250

estimated ending inventory value=$73200 -$53250 =$19,950