It umpany wants to prepare interim financial statements for the first quarter. T

Question

It umpany wants to prepare interim financial statements for the first quarter. The company " l inaking a physical count of inventory. Wayward's gross profit rate averages 34%. The fol e tion for the first quarter is available from its records 302,580 941,040 January I beginning inwentory Cost of goods ptmlased . . Sales. . Sales returns ....1.211,160 8.410 pns profit method to estimate the company's first quarter ending inventory. tobe mation: TDS Company uses a perpctual inventory system. It entered into the following purchses ' ' .alr?transactions for April. (For specific identification, the April 9 sale consisted of 8 units from n inventory and 27 units from the April 6 purchase; the April 30 sale consisted of 12 units from onin inventory 3 units from the April 6 purchase and 10 units from the April 25 purchase.) Dato Ap I Beginning inventory Ap 6 Purchase A 9 Sales p 17 Purchase. . A 25 Purchase. Ap 30 Sales Activitics Units Sold at Retail .. 20 units@$3,000.00 per unit ..30 units@$3,500.00 per unit 35 units @ $12,000.00 per unit 5 units@$4,500.00 per unit 10 units @ $4,800.00 per unit 25 units @ $14,000.00 per unit 60 units Total 65 units

Explanation / Answer

The calculation of closing inventory for quarter using gross profit method

The following steps are used

1) Calculate estimated cost of goods available for sale which in shown as below

Cost of goods available for sale = cost of opening inventory + cost of net purchases

2) calculate estimated cost of goods sold which in shown as below

Cost of goods sold = Net sales – gross profit margin rate

Given in the problem the gross profit rate 34%

The calculation of closing value inventory for the first quarter ending is given below using gross profit method

Amount($)

Particulars

Cost of opening inventory

A

302580

cost of goods purchased

B

941040

Cost of goods available for sale

C=A+B

1243620

less

estimated cost of goods sold

sales

D

1211160

less -: sales return

E

8410

net sales

F=D-E

1202750

less -: 34% gross profit

G=(F/1.34)* 0.34

305175

estimated cost of goods sold

H=F-G

897575

estimated cost of closing inventory

I=C-H

346045

The closing inventory value is $346,045 at the end of first quater

Amount($)

Particulars

Cost of opening inventory

A

302580

cost of goods purchased

B

941040

Cost of goods available for sale

C=A+B

1243620

less

estimated cost of goods sold

sales

D

1211160

less -: sales return

E

8410

net sales

F=D-E

1202750

less -: 34% gross profit

G=(F/1.34)* 0.34

305175

estimated cost of goods sold

H=F-G

897575

estimated cost of closing inventory

I=C-H

346045

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