Gross Profit Method Based on the following data, estimate the cost of the ending merchandise inventory:

Sales (net) $1,450,000
Estimated gross profit rate 42%
Beginning merchandise inventory $100,000
Purchases (net) 860,000
Merchandise available for sale $960,000
Cost of Ending Merchandise Inventory
Merchandise available for sale $
Less cost of merchandise sold $
Estimated ending merchandise inventory $

The answer is $119,000

Explanation:

cost of merchandise sold = Sales - Gross profit.

To find gross profit:

Gross profit rate x sales

0.42 x $1,450,000

= $609,000.

Now to calculate Cost of Sales:

Cost of Sales = Sales - gross profit

$1,450,000 - $609,000

$841,000

Now to calculate Estimated ending merchandise inventory:

Beginning merchandise inventory + purchases - cost of sales

=$100,000 + $860,000 - $841,000

=$119,000

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