Question

Oingo Equipment Co. wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Otingo’s gross profit rate averages 35%. The following information for the first quarter is available from its records.

January 1, Beginning inventory	$802,880
Cost of goods purchased	2,209,636
Sales	3,760,260
Sales return	79,300

Required

Use the gross profit method to estimate the company’s first-quarter ending inventory.

Short answer

Ending Inventory totals$619,892.

Step-by-step solution

Definition of Gross Profit

The excess of revenue earned by the business over the direct cost incurred in the production or acquisition of the goods sold is known as gross profit.

Ending Inventory Under Gross Profit Method

Particular	Amount $
Sales	$3,760,260
Less: Sales return	(79,300)
Net sales	$3,680,960

Cost of goods sold under gross profit method:

$$\begin{gathered} \mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}=\left(1-\mathrm{Gross}\mathrm{Profit}\mathrm{rate}\right)\times \mathrm{Net}\mathrm{sales} \\ =\left(1-35\%\right)\times \$3,680,960 \\ =\$2,392,624 \end{gathered}$$

Ending Inventory:

Particular	Amount $
Beginning Inventory	$802,880
Cost of goods purchased	$2,209,636
	3,012,516
Less: Cost of goods sold	(2,392,624)
Ending Inventory	$619,892