Prior to taking a physical inventory at year-end, the perpetual inventory records of Athena Designs showed an inventory of $26,000, sales of $358,000, and a cost of goods sold of $215,000. The year-end physical inventory indicated goods on hand costing $24,000. The company's gross profit for the year was:

Question

Quizplus · Accepted Answer

To calculate the gross profit, we need to use the formula: Gross profit = Sales - Cost of goods sold

We know that sales were $358,000 and the cost of goods sold was $215,000, so:

Gross profit = $358,000 - $215,000
Gross profit = $143,000

However, we also need to adjust for the difference between the perpetual inventory records and the physical inventory. The perpetual inventory records showed an inventory of $26,000, but the physical inventory indicated goods on hand costing $24,000. This means that the perpetual inventory records overstated the inventory by $2,000 ($26,000 - $24,000).

To correct for this, we need to subtract $2,000 from the cost of goods sold:

Adjusted cost of goods sold = $215,000 - $2,000
Adjusted cost of goods sold = $213,000

Now we can calculate the gross profit:

Gross profit = $358,000 - $213,000
Gross profit = $145,000

Therefore, the answer is C) $141,000.

Prior to Taking a Physical Inventory at Year-End, the Perpetual