/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 14E Mark Price Company uses the gros... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 9: 14E (page 479)

Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Inventory, May 1 $ 160,000 Purchases (gross) 640,000 Freight-in 30,000 Sales revenue 1,000,000 Sales returns 70,000 Purchase discounts 12,000 Instructions (a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.

Short Answer

Expert verified

(a) The estimated inventory on May 31 equals $167,000.

(b) The estimated inventory on May 31 equals $102,644.

Step by step solution

01

Calculation of net purchases

Net purchases is calculated as follows:

Netpurchases=Purchases+Freight-in-Purchasediscounts=$640,000+$30,000-$12,000=$658,000

02

Calculation of cost of goods sold in (a)

Cost of goods sold is calculated as follows:

Costofgoodssold=Salesrevenue-Salesreturn脳1-Grossprofitpercentage=$1,000,000-$70,000脳1-30%=$651,000

03

Calculation of estimated inventory at May 31

(a) Estimated inventory on May 31 is calculated as follows:

EstimatedinventoryatMay31=InventoryatMay1+Netpurchases-Costofgoodssold=$160,000+$658,000-$651,000=$167,000

04

Calculation of gross profit percentage on sales

Gross profit percentage on sales is calculated as follows:

Grossprofitpercentageonsales=Percentagemarkuponcost100%+Percentagemarkuponcost=30%100%+30%=23.08%

05

Calculation of cost of goods sold in (b)

Cost of goods sold is calculated as follows:

Costofgoodssold=Salesrevenue-Salesreturns脳1-Grossprofitpercentage=$1,000,000-$70,000脳1-23.08%=$715,356

06

Calculation of estimated inventory at May 31

(b) Estimated inventory at May 31 is calculated as follows:

EstimatedinventoryatMay31=InventoryatMay1+Netpurchases-Costofgoodssold=$160,000+$658,000-$715,356=$102,644

Thus, ending inventory on May 31, in part (a) equals $167,000, and in part (b) equals $102,644.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Corrs Company began operations in 2016 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2016, and December 31, 2017. This information is presented below. Cost Lower-of-Cost-or-Market 12/31/16 \(356,000 \)327,000 12/31/17 420,000 395,000 Instructions (a) Prepare the journal entries required at December 31, 2016, and December 31, 2017, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used. (b) Prepare journal entries required at December 31, 2016, and December 31, 2017, assuming that the inventory is recorded at market under a perpetual system (loss method is used). (c) Which of the two methods above provides the higher net income in each year?

(LCNRV鈥擡rror Effect) LaGreca Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2017, included product X. Relevant per-unit data for product X are as follows. Estimated selling price \(50 Cost 40 Estimated selling costs 14 Normal profi t 9 There were 1,000 units of product X on hand at December 31, 2017. Product X was incorrectly valued at \)38 per unit for reporting purposes. All 1,000 units were sold in 2018. Instructions Compute the effect of this error on net income for 2017 and the effect on net income for 2018, and indicate the direction of the misstatement for each year.

Under IFRS, agricultural activity results in which of the following types of assets? I. Agricultural produce II. Biological assets (a) I only. (b) II only. (c) I and II. (d) Neither I nor II.

Riegel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2017, consists of products D, E, F, G, H, and I. Relevant per unit data for these products appear below. Item DE F GH I Estimated selling price \(120 \)110 \(95 \)90 \(110 \)90 Cost 75 80 80 80 50 36 Cost to complete 30 30 25 35 30 30 Selling costs 10 18 10 20 10 20 Instructions Using the LCNRV rule, determine the proper unit value for balance sheet reporting purposes at December 31, 2017, for each of the inventory items above.

Question:What are the major uses of the gross profit method?
See all solutions

Recommended explanations on Business Studies Textbooks

Family Business

Read Explanation

Financial Performance

Read Explanation

Change Management

Read Explanation

Intermediate Accounting

Read Explanation

Strategic Analysis

Read Explanation

International Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.