Stanley Inc. has an historical gross profit percentage of 40%. Net purchases for six months were $2800 and sales were $4000. Inventory at the end of the previous period was $300. If Stanley Inc. prepares an interim balance sheet, the amount that can be estimated for closing inventory is:

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Quizplus · Accepted Answer

To estimate the closing inventory, we first calculate the cost of goods sold (COGS). With a gross profit percentage of 40%, the cost of goods sold is 60% of sales (100% - 40%). Sales are $4000, so COGS = 60% of $4000 = $2400. The formula for COGS is: Opening Inventory + Net Purchases - Closing Inventory = COGS. Rearranging to solve for Closing Inventory gives: Closing Inventory = Opening Inventory + Net Purchases - COGS. Substituting the given values: Closing Inventory = $300 + $2800 - $2400 = $700.