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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

Kulsrud Company would like to estimate the current inventory level. Using the gross profit method and the following information, estimate the current inventory level for Kulsrud Company.

Goods available for sale $100,000
Net sales 150,000
Normal gross profit as a percent of sales 40%

To determine

Estimate the current inventory level for K Company using the gross profit method.

Explanation

Gross Profit Method:

The method which uses “cost of goods sold” concept to estimate the “ending inventory value” is referred to as gross profit method or gross margin method.

Estimate the current inventory level for K Company using the gross profit method:

Step 1: Calculate the estimated cost of goods sold.

  Estimated cost of goods sold = (Net sales Normal gross profit)($150,000$60,000)=$90,000

Working note:

Calculate the amount of normal gross profit:

  Normal gross profit = (Net sales <

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