For the period from 2010 through 2012, the Cheryl Company had net sales of $500, 000 and a gross profit of $200, 000.During the first quarter of 2013, the company made purchases of $17, 500 and recorded sales of $37, 500.The inventory value at the beginning of the year was 11, 500.What is the estimated cost of Cheryl's inventory on March 31, 2013, using the gross profit method?

Question

Quizplus · Accepted Answer

Using the gross profit method, we can estimate the cost of Cheryl's inventory on March 31, 2013 by calculating the gross profit percentage first.

Gross Profit Percentage = Gross Profit / Net Sales
Gross Profit Percentage = $200,000 / $500,000
Gross Profit Percentage = 0.4 or 40%

Then, we can use this percentage to estimate the cost of goods sold during the first quarter of 2013.

Cost of Goods Sold = Sales x (1 - Gross Profit Percentage)
Cost of Goods Sold = $37,500 x (1 - 0.4)
Cost of Goods Sold = $22,500

To estimate the cost of inventory on March 31, 2013, we need to subtract the cost of goods sold from the inventory value at the beginning of the year and add the purchases made during the first quarter.

Cost of Inventory on March 31, 2013 = Inventory at the Beginning of the Year + Purchases - Cost of Goods Sold
Cost of Inventory on March 31, 2013 = $11,500 + $17,500 - $22,500
Cost of Inventory on March 31, 2013 = $6,500

Therefore, the estimated cost of Cheryl's inventory on March 31, 2013 using the gross profit method is $6,500. The correct choice is C.

For the Period from 2010 Through 2012, the Cheryl Company