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Q. 5-10PSB

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Financial & Managerial Accounting
Found in: Page 272
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Oingo Equipment Co. wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Otingo’s gross profit rate averages 35%. The following information for the first quarter is available from its records.

January 1, Beginning inventory

$802,880

Cost of goods purchased

2,209,636

Sales

3,760,260

Sales return

79,300

Required

Use the gross profit method to estimate the company’s first-quarter ending inventory.

Ending Inventory totals $619,892.

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Step by Step Solution

Definition of Gross Profit

The excess of revenue earned by the business over the direct cost incurred in the production or acquisition of the goods sold is known as gross profit.

Ending Inventory Under Gross Profit Method

Particular

Amount $

Sales

$3,760,260

Less: Sales return

(79,300)

Net sales

$3,680,960

Cost of goods sold under gross profit method:

Ending Inventory:

Particular

Amount $

Beginning Inventory

$802,880

Cost of goods purchased

$2,209,636

3,012,516

Less: Cost of goods sold

(2,392,624)

Ending Inventory

$619,892

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