When preparing its quarterly financial statements, Pace Company uses the gross margin method to estimate ending inventory. The following information is available for the quarter ending March 31, Year 2: What is the estimated amount of inventory that is on hand on March 31, Year 2? (Do not round your intermediate calculations.)
A)$497,700
B)$608,300
C)$411,700
D)$522,300

Question

When preparing its quarterly financial statements, Pace Company uses the gross margin method to estimate ending inventory. The following information is available for the quarter ending March 31, Year 2:  What is the estimated amount of inventory that is on hand on March 31, Year 2? (Do not round your intermediate calculations.)
A)$497,700 
B)$608,300 
C)$411,700 
D)$522,300

Quizplus · Accepted Answer

Using the gross margin method, we first need to calculate the Cost of Goods Sold (COGS) for the quarter. COGS = Beginning Inventory + Purchases - Ending Inventory. We know that the beginning inventory was $380,000 and purchases were $840,000. We can estimate COGS by taking sales revenue of $1,080,000 and multiplying it by the gross margin percentage of 60% (1 - 0.4). COGS = $1,080,000 * 0.4 = $432,000. Solving for ending inventory, we get: Ending Inventory = Beginning Inventory + Purchases - COGS = $380,000 + $840,000 - $432,000 = $788,000. Therefore, the estimated amount of inventory on hand on March 31, Year 2 is $411,700.

When Preparing Its Quarterly Financial Statements, Pace Company Uses the Gross