Question

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $5,900 Net sales: $88,000 Net purchases: $86,000 The company's gross margin ratio is 20%. Using the gross profit method, the estimated ending inventory value would be:

Answer 1

Working Notes:
	Caclulation of cost of Goods Sold as per gross profit method
		Amount in $
	Net Sales =	$                    88,000
	Less: Gross Profit (20% of $ 88,000)	$                    17,600
	Equals to = Cost of Goods Sold =	$                    70,400
Solution:
	Calculation of Ending Inventory
	Particulars	Amount in $
	Beginning balance of invenotry =	$                       5,900
	Add : Net Purchases made	$                    86,000
	Total Goods Available for sale (A)	$                    91,900
	Less: Cost of Good Sold (B)	$                    70,400
	Equals to = Estimated Ending inventory (A-B)	$                    21,500
Answer = Estimated Ending inventory = $ 21,500