Problem 2 (Gross Profit Method)

No Frills estimates its inventory by the gross profit method. The gross profit averaged 33% of net sales. The companys inventory records show the following:

Inventory, October 1 $ 2,030

Transactions during October

Purchases 7,973

Purchase discounts 125

Purchase returns 25

Sales 8,799

Sales returns 21

Estimate the October 31 inventory using the gross profit method. (Show the October income statement through gross profit and the inventory T account.)