Landis Company is preparing its financial statements.Gross margin is normally 40% of sales.Information taken from the company's records revealed sales of $25,000;beginning inventory of $2,500 and purchases of $17,500.What is the estimated amount of ending inventory at the end of the period?

Question

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Estimated gross margin = Sales × Estimated gross margin percentage
Estimated gross margin = $25,000 × 0.40 = $10,000
Estimated cost of goods sold = Sales - Estimated gross margin
Estimated cost of goods sold = $25,000 - $10,000 = $15,000
Cost of goods available for sale = Beginning inventory + Purchases
Cost of goods available for sale = $2,500 + $17,500 = $20,000
Ending inventory = Estimated cost of goods available for sale -Estimated cost of goods sold
Ending inventory = $20,000 - $15,000 = $5,000

Landis Company Is Preparing Its Financial Statements