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Homework answers / question archive / You are given the following information about ZEE Company Beginning inventory $ 240,000 Purchases 900,000 Purchase return 60,000 Sales 1,500,000 Sales discount 150,000 Gross profit percentage of sales 25% Using the gross profit method the estimated ending inventory is: A
You are given the following information about ZEE Company Beginning inventory $ 240,000 Purchases 900,000 Purchase return 60,000 Sales 1,500,000 Sales discount 150,000 Gross profit percentage of sales 25% Using the gross profit method the estimated ending inventory is: A. $90,000 B. $150,000 SC. $255,000 D. $67 500
Solution:
Option D. $ 67500 is correct
The estimated ending inventory, using the gross profit method
Sales = 1500000
Gross profi = 25% of sales
Sales discount = 150000
Net sales = sales - sales discount
= 1500000 - 150000
= 1350000
Purchase = 900000
Purchase return = 60000
Begining inventory = 240000
Gross profit = net sales - cost of goods sold
Here, Gross profit is 25% of net sales
So cost of goods sold is 75% of net sales
= 1350000 * 75% = 1012500
Net purchase = Purchase - purchase return
= 900000 - 60000 = 840000
Cost of goods sold = Begining inventory + Net purchase - Ending inventory
1012500 = 240000 + 840000 - Ending inventory
1012500 = 1080000 - Ending inventory
Ending inventory = 1080000 - 1012500
= $ 67500
