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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Gross profit method

The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:

Jan. 1 Merchandise inventory $ 350,000
Jan. 1-Dec. 31 Purchases (net) 2,950,000
  Sales 4,440,000
  Estimated gross profit rate 35%
  1. a. Estimate the cost of the merchandise destroyed.
  2. b. Briefly describe the situations in which the gross profit method is useful.

(a)

To determine

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.

To estimate: the cost of merchandise destroyed.

Explanation

First, the merchandise available for sale is calculated by adding up the opening balance of merchandise inventory and purchases made during the year...

(b)

To determine

To describe: the situations whereby gross profit method is useful.

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