Inlet Inc. has a normal gross profit of 25%. The current year's beginning inventory was $3,500, purchases were $14,000, and retail sales were $20,000. The estimated ending inventory under the gross profit method is:

Question

Quizplus · Accepted Answer

The gross profit method estimates ending inventory by applying the gross profit percentage to sales to estimate the cost of goods sold, then subtracting this from the cost of goods available for sale. Here, the cost of goods available for sale is the beginning inventory ($3,500) plus purchases ($14,000), totaling $17,500. With a 25% gross profit, the cost of goods sold is 75% of sales, or 0.75 * $20,000 = $15,000. Subtracting the estimated cost of goods sold ($15,000) from the cost of goods available for sale ($17,500) gives an estimated ending inventory of $2,500.

Inlet Inc Has a Normal Gross Profit of 25