Ernst Equipment Co. wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Ernst’s gross profit rate averages 30%. The following information for the first quarter is available from its records:

January 1 Beginning inventory ……….. $ 752,880
Cost of goods purchased ……………… 2,159,630
Sales …………………………………... 3,710,250
Sales returns …………………………... 74,200

Required

Use the gross profit method to estimate the company’s first quarter ending inventory.

jakester

Current Margin: 30%
Sales $3,710,250
Less: Cost of Goods Sold
Beginning inventory $752,880
Purchases $2,159,630
COG Available $2,912,510
COGS $2,597,175
Gross Profit $1,113,075

Less: Ending Inventory $389,535
COGA - COGS + Returns = $2,912,510 - $2,597,175 + $74,200 = $389535

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