Wade Company estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available: $\begin{array}{lr}
\text { Inventory, March 1 } & \$ 2,000,000 \
\text { Purchases during March } & 1,000,000 \
\text { Purchase returns } & 52,000 \
\text { Sales during March } & 1,700,000
\end{array}$ The estimate of the cost of inventory at March 31 would be
A) $1,248,000.
B) $1,360,000.
C) $1,588,000.
D) $1,673,000.

Question

Quizplus · Accepted Answer

To estimate the cost of inventory at March 31, we first calculate the cost of goods available for sale: $2,000,000 (beginning inventory) + $1,000,000 (purchases) - $52,000 (purchase returns) = $2,948,000. Next, we calculate the cost of goods sold using the sales and markup: $1,700,000 (sales) / 1.25 (markup on cost) = $1,360,000 (cost of goods sold). Finally, we subtract the cost of goods sold from the cost of goods available for sale: $2,948,000 - $1,360,000 = $1,588,000.

Wade Company Estimates the Cost of Its Physical Inventory at March