On February 2, Year 2, a fire destroyed the entire inventory of Orange Co. The following information was found in accounting records: purchases of $420,000, sales of $690,000, beginning inventory of $120,000, and average gross margin percentage of 30%. Based on the above information, indicate whether each of the following statements is true or false. ________ a) The cost of goods available for sale is $540,000. ________ b) The cost of goods sold as a percent of sales is 70%. ________ c) The estimated cost of goods sold is $303,000. ________ d) Estimated inventory lost in the fire is $66,000. ________ e) Estimated gross margin for the period up to the date of the fire was $483,000.

Question

What will be an ideal response?

Answer 1

a) T b) T c) F d) F e) F 

a) This is true. Cost of goods available for sale =Beginning inventory of $120,000 + Purchases of $420,000 = $540,000.
b) This is true. If average gross margin percentage is 30%, cost of goods sold percentage is 100% ? 30%, or 70%.
c) This is false. Estimated cost of goods sold = Sales of $690,000 × Gross margin percentage of 70% = $483,000.
d) This is false. Estimated ending inventory = Beginning inventory of $120,000 + Purchases of $420,000 ? Estimated cost of goods sold of $483,000 = $57,000.
e) This is false. Sales of $690,000 ?- Estimated cost of goods sold of $483,000 = $207,000.