Question

The following information is available for October for Barton Company:Beginning inventory $250,000Net purchases 750,000Net sales 1,500,000Percentage markup on cost 66.67%A fire destroyed Barton's October 31 inventory, leaving undamaged inventory with a cost of $15,000. Using the gross profit method, the estimated ending inventory destroyed by fire is:a. $85,000.b. $385,000.c. $400,000.d. $500,000.

Answer 1

Answer:

a. $85,000.

Explanation:

The formula to compute the cost of goods sold is shown below:

Cost of goods sold = Opening inventory + Purchase - ending inventory

Since in the question the cost of goods sold is not given, so first we have to find it.

Let we assume the cost of good sold be X

And, the net sales is $1,500,000 and Percentage markup on cost 66.67%

By this information, we have to make the equation which is shown below:

$1,500,000 = X × (66.67% + 100)

$1,500,000 = 66.67X + 100X

$1,500,000 = 166.67%X

So, X = $1,500,000 ÷ 166.67% = $899,982

The other items values remain the same

Now put these values to the above formula  

So, the value would equal to

$899,982 = $250,000 + $750,000 - ending inventory

So, the ending inventory = $100,018

So, the estimated ending inventory = Ending inventory - undamaged inventory

= $100,018 - $15,000

= $85,018