The following data is available: $$\begin{array} { | l | r | }
\hline \text { Net sales } & \$ 16,000 \
\hline \text { Normal gross profit } & 45 \% \
\hline \text { Beginning inventory } & 12,000 \
\hline \text { Net purchases } & 7,000 \
\hline
\end{array}$$ Using the gross profit method, the estimated ending inventory balance would be:

Question

The following data is available: $$\begin{array} { | l | r | } 
\hline \text { Net sales } & \$ 16,000 \
\hline \text { Normal gross profit } & 45 \% \
\hline \text { Beginning inventory } & 12,000 \
\hline \text { Net purchases } & 7,000 \
\hline
\end{array}$$ Using the gross profit method, the estimated ending inventory balance would be:

Quizplus · Accepted Answer

The gross profit method formula is:

Estimate ending inventory = Net sales - Cost of goods sold

To calculate cost of goods sold using the gross profit method, we first need to calculate the gross profit percentage as follows:

Gross profit percentage = Normal gross profit percentage ÷ Net sales

Gross profit percentage = 45% ÷ $16,000

Gross profit percentage = 0.00281 or 0.281%

Using this percentage, we can estimate the cost of goods sold as:

Cost of goods sold = Net sales × (100% - Gross profit percentage)

Cost of goods sold = $16,000 × (100% - 0.281%)

Cost of goods sold = $11,352

Finally, we can estimate the ending inventory as:

Estimate ending inventory = Net sales - Cost of goods sold

Estimate ending inventory = $16,000 - $11,352

Estimate ending inventory = $4,648

However, this is the estimated cost of goods sold. To estimate the ending inventory balance, we need to subtract the purchased inventory from the estimated cost of goods sold and add the beginning inventory:

Estimate ending inventory = Estimated cost of goods sold - Net purchases + Beginning inventory

Estimate ending inventory = $11,352 - $7,000 + $12,000

Estimate ending inventory = $16,352 - $7,000

Estimate ending inventory = $9,352

Therefore, the estimated ending inventory balance is $9,352, which corresponds to answer choice C.

The Following Data Is Available Using the Gross Profit Method, the Estimated Ending Inventory Balance