TB Nelson Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit rate. During June, net sales amounted to $180,000; the beginning inventory on June 1 was $54,000; and the cost of goods purchased during June amounted to $90,000. The estimated cost of TB Nelson Company's inventory on June 30 is

Question

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To estimate the ending inventory using the gross profit method, first calculate the cost of goods sold (COGS) by applying the gross profit rate to net sales. With a 40% gross profit rate, the COGS is 60% of sales: $180,000 * 60% = $108,000. Then, calculate the cost of goods available for sale: Beginning Inventory ($54,000) + Purchases ($90,000) = $144,000. Finally, subtract COGS from the cost of goods available for sale to estimate ending inventory: $144,000 - $108,000 = $36,000.

TB Nelson Company Prepares Monthly Financial Statements and Uses the Gross