As a Result of Taking a Physical Inventory Count on December

question 78

Multiple Choice

As a result of taking a physical inventory count on December 31, 2010, the Lisa Company inventory was determined to be $61, 500.The auditors for Lisa suspected an inventory shortage and used the gross profit method to estimate the ending inventory.The accounting records for the company contained the following information: $\begin{array}{ll}\text { Inventory }(1 / 1 / 10) & \$ 130,000 \\\text { Purchases }(2010) & 760,000 \\\text { Sales }(2010) & 1,020,000 \\\text { Sales returns }(2010) & 60,000 \\\text { Grossprofit ratio } & 25 \% \text { of sales }\end{array}$ Using the gross profit method, what did the auditors estimate as the amount of the inventory that should have been on hand at December 31, 2010?

• A)$240, 000
• B)$ 61, 500
• C)$125, 000
• D)$170, 000

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