Question

Problem 17.4A Estimating inventory by the gross profit method. LO 17-4 Over the past several years, Hyman Electronics has had an average gross profit of 30 percent. At the end of 2019, the income statement of the company included the following information. $1,649,000 Sales Cost of Goods Inventory, January 1, 2019 Purchases Total Merchandise Available for Sale Less Inventory, December 31, 2019 Cost of Goods Sold Gross Profit on Sales $ 115,000 1,150,000 1,265,000 132,875 1, 132, 125 $ 516,875 Investigation revealed that employees of the company had not taken an actual physical count of the inventory on December 31. Instead, they had merely estimated the inventory. Required: Using the gross profit method of inventory, calculate the estimated ending inventory. Analyze: If a physical inventory count on December 31, 2019, revealed an ending inventory of $131,563, calculate the gross profit percentage.

Answer 1

Answer 1:

Cost of goods sold = Sales - Gross Profit = 1649000 - 1649000 * 30% = $1,154,300

Estimated ending inventory = Beginning inventory + Purchases - Cost of goods sold

= 115000 + 1150000 - 1154300

= $110,700

Beginning inventory, January 1, 2019 Purchases Cost of Goods available for sale Cost of goods sold Estimated Ending inventory $115,000 $1,150,000 $1,265,000 $1,154,300 $110,700

Answer 2:

Gross Profit 31.3%

Working:

Ending inventory = $131,563

Cost of Goods sold = Beginning inventory + Purchases - Ending inventory =

= 115000 + 1150000 - 131563

= $1,133,437

Gross profit = Sales - Cost of goods sold = 1649000 - 1133437 = $5,155,63

Gross profit percentage = 515563/1649000 = 31.3%