Big Box Store has operated with a 30% average gross profit ratio for a number of years.It had $100,000 in sales during the second quarter of this year.If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter,its estimated ending inventory by the gross profit method is:
A)$30,000.
B)$21,000.
C)$20,000.
D)$18,000.
E)$27,000.

Question

Quizplus · Accepted Answer

Using the gross profit method, we can calculate the cost of goods sold:
Cost of goods sold = Sales revenue x (1 - Gross profit ratio)
Cost of goods sold = $100,000 x (1 - 0.30) = $70,000

We can then calculate the estimated ending inventory at cost:
Estimated ending inventory = Beginning inventory + Purchases - Cost of goods sold
Estimated ending inventory = $18,000 + $72,000 - $70,000 = $20,000

Therefore, the best choice is C, as it represents the estimated ending inventory at cost by the gross profit method.

Big Box Store Has Operated with a 30% Average Gross