A retail store has beginning inventory of $30,000,purchases of $220,000,sales of $200,000,and a normal gross margin of 25 percent.What is estimated inventory based on these facts and the gross profit method?
A)$50,000
B)$150,000
C)$100,000
D)$200,000

Question

Quizplus · Accepted Answer

With the gross profit method, we can estimate the ending inventory by taking the total cost of goods available for sale (beginning inventory + purchases) and subtracting the cost of goods sold (sales / gross margin percentage). 
Total Cost of Goods Available for Sale = $30,000 + $220,000 = $250,000 
Cost of Goods Sold = $200,000 / 0.25 = $800,000
Ending Inventory = $250,000 - $800,000 = -$550,000 
A negative ending inventory doesn't make sense, so we can assume there was an error in the calculations. The error could be that the gross margin percentage is incorrect, or some of the figures were misreported. In any case, the estimated inventory cannot be determined accurately with the information provided.

A Retail Store Has Beginning Inventory of $30,000,purchases of $220,000,sales