On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements. The following information is available: Beginning inventory, July 1: $4,000
Net sales: $40,000
Net purchases: $41,000
The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold would be:
A) $4,000.
B) $5,000.
C) $21,000.
D) $25,000.
E) $34,000.

Question

Quizplus · Accepted Answer

The cost of goods sold (COGS) is calculated by subtracting the gross margin from net sales. With a gross margin ratio of 15%, the gross margin is $6,000 (15% of $40,000). Therefore, COGS is $34,000 ($40,000 - $6,000).

On September 30 a Company Needed to Estimate Its Ending