Assume Falcon Linen Stores estimates its inventory by the gross margin method when preparing monthly financial statements (it uses the periodic method otherwise). For the past two years, the gross margin has averaged 40 percent of net sales. Assume further that the company's inventory records for its stores reveal the following data:
Inventory: June 1, 2014 ............................ $ 480,000
Transactions during June:
Purchases ............................................. 4,920,000
Sales ................................................... 8,360,000
Required
1. Estimate the June 30, 2014, inventory using the gross margin method.
2. Prepare the June income statement through gross margin for Falcon Linen Stores.