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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 6, Problem 24E
Textbook Problem
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Gross profit method

The inventory was destroyed by fire on December 31. The following data were obtained from the accounting records:

Chapter 6, Problem 24E, Gross profit method The inventory was destroyed by fire on December 31. The following data were

  1. A. Estimate the cost of the inventory destroyed.
  2. B. Briefly describe the situations in which the gross profit method is useful.

(a)

To determine

Estimate the cost of merchandise destroyed.

Explanation of Solution

Gross profit method

This method is use the estimated gross profit for the period to evaluate and ascertain the ending inventory for the period. The gross profit for the period is calculated from the preceding year, which is adjusted for any current period changes in the sales and cost price of the inventory.

First, the merchandise available for sale is calculated by adding up the opening balance of merchandise inventory and purchases made during the year. Then it is deducted with estimated cost of merchandise sold during the year to arrive at estimated merchandise inventory for the end of the year. Estimated cost of merchandise sold during the year is calculated by deducting estimated gross profit from sales during the year...

(b)

To determine

Describe the situations whereby gross profit method is useful.

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Chapter 6 Solutions

Financial And Managerial Accounting
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