Gross profit method Kiowa Ltd. prepares monthly financial statements. Inventory is counted only at year end;...

Gross profit method

Kiowa Ltd. prepares monthly financial statements. Inventory is counted only at year end; thus, month-end inventories must be estimated. All sales are made on account. The rate of markup on cost is 25%. The following information relates to the month of May:

Accounts receivable, May 1 $31,000

Accounts receivable, May 31 $37,000

Collections of accounts during May $94,000

Inventory, May 1 $47,000

Purchases during May $75,000

Instructions

Calculate the estimated cost of the inventory on May 31.

Expert Solution

Calculation of Sales during May
	$
Collections of accounts	94,000.00
Add: accounts receivable, May 31	37,000.00
Less: accounts receivable, May 1	(31,000.00)
Sales during May	100,000.00



Calculation of estimated inventory at March 31

	$
Beginning inventory	47,000.00
Purchases during May	75,000.00
Goods Available	122,000.00
Cost of sales ($100,000 ÷ 125%)	(80,000.00)
Estimated ending inventory, May 31	42,000.00

ekkarill92 answered 2 years ago

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