The Cyprus Company recently lost its entire inventory in a fire. The accounting records reflect the following information:
Using the gross profit method, estimated inventory is:
A) $102,600
B) $29,520
C) $36,000
D) Cannot be determined with given information.
B) $29,520
Explanation: beginning inventory + net purchases = cost of goods available for sale; net sales × gross profit rate = estimated gross profit, subtract this from net sales for estimated cogs; cost of goods available for sale - estimated cogs = estimated ending inventory. Ex: $36,000 + $220,500 = $256,500 cost of goods available for sale; $378,300 × 40% = $151,320, $378,300 - $151,320 = $226,980; $256,500 - $226,980 = $29,520
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