As a result of taking a physical inventory count on December 31, 20104 the Cookie Company inventory was determined to be $425,000. The auditors for Cookie suspected an inventory shortage and used the gross profit method to estimate the ending inventory. The accounting records for the company contained the following information: $\begin{array}{ll}
\$ 330,000 & \text { Inventory }(1 / 1 / 14) \
1,770,000 & \text { Purchases (2014) } \
2,200,000 & \text { Sales (2014) } \
100,000 & \text { Sales returns (2014) } \
25 \% \text { of sales } & \text { Gross profit ratio }
\end{array}$
Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2014?

Question

As a result of taking a physical inventory count on December 31, 20104 the Cookie Company inventory was determined to be $425,000. The auditors for Cookie suspected an inventory shortage and used the gross profit method to estimate the ending inventory. The accounting records for the company contained the following information: $\begin{array}{ll}
\$ 330,000 & \text { Inventory }(1 / 1 / 14) \
1,770,000 & \text { Purchases (2014) } \
2,200,000 & \text { Sales (2014) } \
100,000 & \text { Sales returns (2014) } \
25 \% \text { of sales } & \text { Gross profit ratio }
\end{array}$
 Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2014?

Quizplus · Accepted Answer

The estimated ending inventory using the gross profit method is $525,000. The actual inventory count was $425,000, indicating a shortage of $100,000.

As a Result of Taking a Physical Inventory Count on December