The beginning inventory of Soft Toys Company was $46,000. The purchases (excluding returns)and sales revenue for the year were $230,000 and $325,000, respectively. The purchase returns amounted to $30,000. The company's normal gross profit percent is 60%. What is the amount of estimated ending inventory?

Question

Quizplus · Accepted Answer

Beginning Inventory = $46,000
Purchases (excluding returns) = $230,000
Purchase returns = $30,000
Net purchases = Purchases - Purchase returns = $200,000

Cost of goods sold = Beginning Inventory + Net Purchases - Ending Inventory
We know that Gross profit percent = Gross profit / Revenue x 100
So, Gross profit = Gross profit percent x Revenue / 100
We are given that normal gross profit percentage is 60%
Therefore, Gross profit = 60% x $325,000 / 100 = $195,000

Now, we can calculate the Ending Inventory using the following formula:
Ending Inventory = Beginning Inventory + Net Purchases - Cost of goods sold

Cost of goods sold = Revenue - Gross profit
Cost of goods sold = $325,000 - $195,000 = $130,000

Ending Inventory = $46,000 + $200,000 - $130,000
Ending Inventory = $116,000

Therefore, the estimated ending inventory is $116,000. The correct answer is D.

The Beginning Inventory of Soft Toys Company Was $46,000