On September 30, Stark Company needed to estimate its ending inventory in order to prepare its third-quarter financial statementsInventory, July 1Third quarter net salesThird quarter net purchases: $17,500Stark's gross profit ratio is 15%. Estimated cost of goods sold would be:

Question

Quizplus · Accepted Answer

To find the estimated cost of goods sold, we first need to calculate the cost of goods available for sale:

Inventory at July 1 = Ending inventory from previous quarter
Cost of goods available for sale = Inventory at July 1 + Net purchases
Cost of goods available for sale = $17,500 + $17,500 = $35,000

Next, we can use the gross profit ratio to estimate the cost of goods sold:

Gross profit ratio = Gross profit / Net sales

Gross profit = Gross profit ratio x Net sales
Gross profit = 0.15 x Third quarter net sales
Gross profit = 0.15 x $X (unknown)

We can solve for X:

Gross profit = $35,000 - Cost of goods sold
0.15X = $35,000 - Cost of goods sold
Cost of goods sold = $35,000 - 0.15X

Now we can substitute the given information to find the estimated cost of goods sold:

Cost of goods sold = $35,000 - 0.15 x Third quarter net sales
Cost of goods sold = $35,000 - 0.15 x $X (unknown)
Cost of goods sold = $35,000 - 0.15 x $117,500 (given third quarter net sales)
Cost of goods sold = $35,000 - $17,625
Cost of goods sold = $17,375

Therefore, the estimated cost of goods sold is $17,375. To find the estimated ending inventory, we can subtract the estimated cost of goods sold from the cost of goods available for sale:

Estimated ending inventory = Cost of goods available for sale - Estimated cost of goods sold
Estimated ending inventory = $35,000 - $17,375
Estimated ending inventory = $17,625

However, the question only asks for the estimated cost of goods sold, which is $34,000 when rounded to the nearest thousand dollars (i.e. C) is incorrect). The correct answer is D, $34,000

On September 30, Stark Company Needed to Estimate Its Ending