When preparing its quarterly financial statements,Pace Co.uses the gross margin method to estimate ending inventory.The following information is available for the quarter ending March 31,Year 2:

What is the estimated amount of inventory that is on hand on March 31,Year 2?
A)$236,250
B)$288,750
C)$206,250
D)$258,750

Question

When preparing its quarterly financial statements,Pace Co.uses the gross margin method to estimate ending inventory.The following information is available for the quarter ending March 31,Year 2:

What is the estimated amount of inventory that is on hand on March 31,Year 2?
A)$236,250 
B)$288,750 
C)$206,250 
D)$258,750

Quizplus · Accepted Answer

Estimated gross margin = Sales × Estimated gross margin percentage
Estimated gross margin = $525,000 × 0.45 = $236,250
Estimated cost of goods sold = Sales - Estimated gross margin
Estimated cost of goods sold = $525,000 - $236,250 = $288,750
Cost of goods available for sale = Beginning inventory + Purchases
Cost of goods available for sale = $110,000 + $385,000 = $495,000
Ending inventory = Cost of goods available for sale ? Estimated cost of goods sold
Ending inventory = $495,000 - $288,750 = $206,250

When Preparing Its Quarterly Financial Statements,Pace Co