Question

In: Accounting

which of the following methods can be used to estimate ending inventory when a physical count...

which of the following methods can be used to estimate ending inventory when a physical count is not possible:

1. lower of cost or market

2. FIFO
3. perpetual cost

4. gross profit

Explain the answer in detail.

Solutions

Expert Solution

Firstly, let us understand the valuation as given in the question.

1. lower of cost or market value: This method requires the value of the inventory to be measured at the lower of cost or market value. This is not possible when the physical inventory count is not possible.

2. FIFO: FIFO stands for First In First Out. As the name suggests, it assumes that the inventory that is purchased first is sold first. The inventory that is left in the end is the inventory purchased in the end. If we donot know the physical inventory count. This method is also not possible to apply.

3. Perpetual Cost: Perpetual inventory is a method of accounting for inventory that records the sale or purchase of inventory immediately at the time of transaction. This method is also not possible to apply when the inventory count is not possible.

4. Gross Profit method:Under this method the inventory is calculated as Opening Inventory+Purchases + Gross Profit - Sales

Gross Profit is assumed as a fixed percentage of sales.

You can note that the inventory count is nowhere required in the formula.Therefore this is the method that can be used when the physical inventory count is not possible.

Hence, The answer to the question is 4.. Gross Profit.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

we focus on different methods used to estimate ending inventory – the gross profit method and...
we focus on different methods used to estimate ending inventory – the gross profit method and the retail inventory method. Discuss how each method is used to calculated estimated ending inventory. Under what circumstances is it appropriate to use these methods? Support your response to question #2 with a reference from the ASC (Accounting Standard Codification).
Armstrong Inc. did a physical inventory count and accidentally overstated ending inventory on the 12/31/18 financial...
Armstrong Inc. did a physical inventory count and accidentally overstated ending inventory on the 12/31/18 financial statement by $20,000. The company noticed the error during 2020, before books were closed. The 2020 inventory was not affected since physical inventory was adequately counted. How would Armstrong Inc correct this error in 2020, assume a 21% tax rate. Credit Retained Earnings by $15,800. No adjustment necessary since it fixed itself. Debit Retained Earnings by $15,800. Credit Inventory by $20,000 On January 1,...
Retail inventory method; various cost methods Sparrow Company uses the retail inventory method to estimate ending...
Retail inventory method; various cost methods Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2016 are as follows: Cost Retail Beginning Inventory $90,000 $180,000 Purchases $355,000 $581,000 Freight-in $9,000 Purchase Returns $7,000 $11,000 Net Markups $16,000 Net Markdowns $12,000 Normal Spoilage $3,000 Abnormal Spoilage $4,800 $8,000 Sales $540,000 Sales Returns $10,000 The company records sales net of employee discounts. Discounts for 2016 totaled $4,000. Required: Estimate Sparrow’s ending inventory and...
Estimate the cost of the ending merchandise inventory
Based on the following data , estimate the cost of the ending merchandise inventoryParticularsAmount$Sales92,50,000Estimated Gross profit rate 36%Beginning merchandise inventory1,80,000Purchase (net)59,45,000Merchandise available for sale61,25,000 
What are the four different methods used to assign costs to ending inventory and cost of...
What are the four different methods used to assign costs to ending inventory and cost of goods sold? How are the methods different? What impact does each method have on the calculation of net income and ending inventory? do not use the outside resources, please answer in your own words.
What are the four different methods used to assign costs to ending inventory and cost of...
What are the four different methods used to assign costs to ending inventory and cost of goods sold? How are the methods different? What impact does each method have on the calculation of net income and ending inventory?
Is it necessary to do a physical count of inventory if the company is using a...
Is it necessary to do a physical count of inventory if the company is using a perpetual system? Why or why not? What sort of company would likely use a perpetual system? What sort of company would likely use a periodic system? (Provide specific examples). Please provide one main post and two additional peer interactions. Your main post must be a minimum of 200 words
Is it necessary to do a physical count of inventory if the company is using a...
Is it necessary to do a physical count of inventory if the company is using a perpetual system? Why or why not? What sort of company would likely use a perpetual system? What sort of company would likely use a periodic system? (Provide specific examples).
Cost of Goods Sold and Ending Inventory for each of the following methods:
Calculate the following:Cost of Goods Sold and Ending Inventory for each of the following methods:a.    FIFOb.    LIFOc.     Weighted Average  Units                    Unit Cost7/1      Beginning Inventory 100 107/5      Purchases                                                     500 157/15    Sales                                                              400                             7/20    Purchases                                                     200 20
How can QuickBooks be used to count inventory? Is there a particular report in QuickBooks that...
How can QuickBooks be used to count inventory? Is there a particular report in QuickBooks that you think is most useful in tracking inventory? Why do you this this particular report is most useful?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT