ment had recorded the purchase as an account payable on 28 December 20X4. Title to the inventory had passed to Zhang on 27 December, the date that the supplier had loaded the shipment onto the shipping company's trucks. Zhang uses a periodic inventory method. Required: 1. 2. What impact did the errors have on each company's financial statements? What correcting entry should each company make when the error is discovered? A8-19 Gross Margin Method: You are auditing the records of Lin Corp. The company took a physical inventory under your observation. However, the valuations have not been completed. The records of the company provide the following data: sales, $400,000 (gross); returned sales, $17,500 (returned to stock); purchases (gross), $250,000; beginning inventory $160,000; freight-in, $8,000, and purchase returns and allowances, $7,000. The gross margin last period was 25% of net sales; you anticipate that it will average 30% for the year under audit. Required: Estimate the cost of the ending inventory and the cost of sales using the gross margin method. Show all calculations. Solution ? ? A8-20 Gros, a bookrtailer.nr The manager of Seaton Books Ltd., a book retailer, requires an estimate of the inventory cost for a quarterty 21 March 20X5. In the past, the gross margin method was used because of