19E - Intermediate Accounting (Kieso)

Question

Presented below is information related to Aaron Rodgers Corporation for the current year. Beginning inventory \( 600,000 Purchases 1,500,000 Total goods available for sale \)2,100,000 Sales revenue 2,500,000 Instructions Compute the ending inventory, assuming that (a) gross profit is 45% of sales, (b) gross profit is 60% of cost, (c) gross profit is 35% of sales, and (d) gross profit is 25% of cost.

Step-by-Step Solution

Answer

(a) Ending inventory is $725,000.

(b) Ending inventory is $537,500.

(c) Ending inventory is   $475,000.

(d) Ending inventory is $100,000.

Calculation of gross profit on sales in case (b)

Gross profit on sales is calculated as follows:

$\begin{array}{rcl}\mathrm{Gross} \mathrm{profit} \mathrm{percentage} \mathrm{on} \mathrm{sales}& =& \frac{\mathrm{Percentage} \mathrm{markup} \mathrm{on} \mathrm{cost}}{100\%+\mathrm{Percentage} \mathrm{markup} \mathrm{on} \mathrm{cost}}\\ & =& \frac{60\%}{100\%+60\%}\\ & =& 37.50\%\end{array}$

Calculation of gross profit on sales in case (d)

Gross profit on sales is calculated as follows:

$\begin{array}{rcl}\mathrm{Gross} \mathrm{profit} \mathrm{percentage} \mathrm{on} \mathrm{sales}& =& \frac{\mathrm{Percentage} \mathrm{markup} \mathrm{on} \mathrm{cost}}{100\%+\mathrm{Percentage} \mathrm{markup} \mathrm{on} \mathrm{cost}}\\ & =& \frac{25\%}{100\%+25\%}\\ & =& 20\%\end{array}$

Calculation of ending inventory

Ending inventory is calculated as follows:

	(a)	(b)	(c)	(d)
Beginning inventory	$600,000	$600,000	$600,000	$600,000
Purchases	1,500,000	1,500,000	1,500,000	1,500,000
Total goods available for sale (A)	$2,100,000	$2,100,000	$2,100,000	$2,100,000
Sales Revenue	$2,500,000	$2,500,000	$2,500,000	$2,500,000
Gross Profit (Sales Revenue*Gross Profit Percentage)	$1,125,000	$937,500	$875,000	$500,000
Cost of goods sold (B)	$1,375,000	$1,562,500	$1,625,000	$2,000,000
Ending inventory (A-B)	$725,000	$537,500	$475,000	$100,000

 

Thus, ending inventory equals $725,000, $537,500, $475000 and $100,000.