Gross Profit Method During the period, the beginning inventory for Icy Strait Co
ID: 2482356 • Letter: G
Question
Gross Profit Method During the period, the beginning inventory for Icy Strait Corporation was $400,000 and purchases were S600.000. The historical gross profit ratio is 40%. Sales for the period were $1, 200,000. What was the estimated amount of ending inventory under the gross profit method? Estimated Inventory S. Inventory Errors Dexter Inc. is a calendar year corporation. Its financial statements for the years 2012 and 2011 contained errors as follows: Assume that no correcting entries have been made Ignoring income taxes, by how much will retained earnings at December 31, 2012 be overstated or understated? (Give amount AND whether over- or understated)Explanation / Answer
1. Beginning inventory 400000
Purchases 600000
Sales 1200000
Gross profit ratio 40%
Gross profit ratio = gross profit / sales
0.4 = gross profit / 1200000
gross profit = 1200000 * 0.4 = 480000
Beginning inventory + purchases+ gross profit = sales + ending inventory
400000 + 600000 + 480000 = 1200000 + ending inventory
1480000 -1200000 = ending inventory
ending inventory = 280000
2. Ending inventory of 2012 is overstated and retained earnings is overstated.
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