Question

Wayward Company wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Wayward’s gross profit rate averages 34%. The following information for the first quarter is available from its records.

January 1, beginning inventory	$302,580
Cost of goods purchased	941,040
Sales	1,211,160
Sales Return	8,410

Required

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

Short answer

Ending inventory of the business entity totals$449,805.

Step-by-step solution

Definition of Gross Profit Method

The method of calculating the ending inventory of the business entity by using the gross profit rate and the net sales made by the business entity is known as the gross profit method.

Calculation of Ending Inventory

Particular	Amount $
Sales	$1,211,160
Less: Sales return	(8,410)
Net sales	$1,202,750

Cost of goods sold under gross profit method:

$$\begin{gathered} Costofgoodssold=\left(1-Grossprofitrate\right)\times Netsales \\ =\left(1-34\%\right)\times \$1,202,750 \\ =\$793,815 \end{gathered}$$

Ending Inventory:

Particular	Amount $
Beginning Inventory	$302,580
Cost of goods purchased	941,040
	1,243,620
Less: Cost of goods sold	(793,815)
Ending Inventory	$449,805