31. As a result of taking a physical inventory count on December 31, 2004, the C

Question

31.       As a result of taking a physical inventory count on December 31, 2004, the Chuckles Company inventory was determined to be $82,500. The auditors for Chuckles suspected an inventory shortage and used the gross profit method to estimate the ending inventory. The accounting records for the company contained the following information:

Inventory (1/1/04)

$ 130,000

Purchases (2004)

760,000

Sales (2004)

1,020,000

Sales Returns (2004)

60,000

Gross Profit Ratio

30% of sales

Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2004?

a.

$240,000

b.

$100,000

c.

$135,500

d.

$170,000

Inventory (1/1/04)

$ 130,000

Purchases (2004)

760,000

Sales (2004)

1,020,000

Sales Returns (2004)

60,000

Gross Profit Ratio

30% of sales

Explanation / Answer

Hence amount of the inventory shortage at December 31, 2004=(218000-82500)

=$135500(C)

To beginning inventory 130,000 By net sales(1,020,000-60,000) 960,000 To purchases 760,000 By ending inventory(balance) $218000 To gross profit(30%*960,000) 288,000 Total 1178000 Total 1178000

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.