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

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