ABC Inc. had net sales of $120,000 during 2013. Its finished goods inventories were valued at $20,000 on January 1^st, 2013. During the year, $60,000 of goods was purchased for resale. The company has a gross profit percentage of 40%. What was the company's estimated inventory at December 31^st, 2013 under the Gross Profit method? A) $8,000. B) $72,000. C) $48,000. D) $60,000.

Question

Quizplus · Accepted Answer

The cost of goods sold (COGS) is 60% of net sales (100% - 40% gross profit), which is $72,000 (60% of $120,000). The cost of goods available for sale is the beginning inventory ($20,000) plus purchases ($60,000), totaling $80,000. The estimated ending inventory is the cost of goods available for sale ($80,000) minus COGS ($72,000), which equals $8,000.

ABC Inc Had Net Sales of $120,000 During 2013