Question
The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records: Jan. 1 Merchandise Inventory $ 340,000
The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:
Jan. 1 | Merchandise Inventory | $ 340,000 |
Jan. 1 to Dec. 13 | Purchases (net) | 2,930,000 |
Sales | 4,450,000 | |
Estimated gross profit rate | 30% |
A. | Estimate the cost of the merchandise destroyed. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. |
B. | In which situations would the gross profit method be useful? |
Exact wording description Estimated cost of merchandise sold | |
Estimated merchandise inventory, December 13 | |
Less estimated gross profit | |
Merchandise available for sale | |
Merchandise inventory, January 1 | |
Plus estimated gross profit | |
Purchases (net), January 1-December 13 | |
Ratio of cost to retail price | |
Sales, January 1-December 13 |
B. The gross profit method is useful. Check all that apply.
__for estimating inventories for monthly or quarterly financial statements.
__for deciding whether the inventory has gone out of style and must be marked down.
to help management decide between FIFO, LIFO, and weighted average inventory cost flow methods.
__for estimating the cost of merchandise destroyed by fire or other disasters.
__for determining the sales price of merchandise.
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