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: $4,000
Net sales: $80,000
Net purchases: $78,000
The company's gross margin ratio is 25%.Using the gross profit method,the estimated ending inventory value would be:
A)$82,000.
B)$60,000.
C)$20,000.
D)$22,000.
E)$19,500.

Question

Quizplus · Accepted Answer

Beginning inventory + Net purchases = Goods available for sale
$4,000 + $78,000 = $82,000
Gross margin = Net sales - Cost of goods sold
Gross margin ratio = Gross margin / Net sales
25% = Gross margin / $80,000
Gross margin = $20,000
Cost of goods sold = Net sales - Gross margin
Cost of goods sold = $80,000 - $20,000
Cost of goods sold = $60,000
Ending inventory = Goods available for sale - Cost of goods sold
Ending inventory = $82,000 - $60,000
Ending inventory = $22,000, which is the estimated ending inventory value using the gross profit method.

On March 31 a Company Needed to Estimate Its Ending