E. Preslay 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 $200000; the beginning inventory on June 1 was $60000; and the cost of goods purchased during June amounted to $90000. The estimated cost of E. Preslay Company's inventory on June 30 is

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold during June:

Beginning inventory: $60,000 
Add purchases: $90,000 
= Cost of goods available for sale: $150,000 
Subtract ending inventory (unknown): $xx 
= Cost of goods sold: $xx

To estimate the ending inventory, we can use the gross profit method:

Gross profit rate: 40% 
Net sales: $200,000 
Cost of goods sold: $xx 
= Gross profit: $80,000

We can then use the gross profit to estimate the cost of goods sold:

Gross profit: $80,000 
Cost of goods sold: $xx 
= Net sales - Gross profit: $120,000

Now we can calculate the ending inventory:

Cost of goods available for sale: $150,000 
Cost of goods sold: $120,000 
= Ending inventory: $30,000

Therefore, the estimated cost of E. Preslay Company's inventory on June 30 is $30,000 (Option B).

E Preslay Company Prepares Monthly Financial Statements and Uses the Gross