As a Result of Taking a Physical Inventory Count on December

question 120

Multiple Choice

As a result of taking a physical inventory count on December 31, 20104 the Cookie Company inventory was determined to be $425,000. The auditors for Cookie 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: $\begin{array}{ll}\$ 330,000 & \text { Inventory }(1 / 1 / 14) \\1,770,000 & \text { Purchases (2014) } \\2,200,000 & \text { Sales (2014) } \\100,000 & \text { Sales returns (2014) } \\25 \% \text { of sales } & \text { Gross profit ratio }\end{array}$
Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2014?

• A) $100,000
• B) $75,000
• C) $15,000
• D) $25,000

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Definitions:

Short-term Memory

A limited-capacity store that can maintain information for a short period of time, typically seconds to minutes, without rehearsal.

Rehearsing

The act of practicing or repeating information or activities in order to improve skill or memorize information.

Rehearsing

involves repetitively practicing material to be remembered, a strategy to transfer information from short-term to long-term memory.

Sensory Memory

The shortest-term element of memory, allowing the ability to retain impressions of sensory information after the original stimuli have ended, acting as a buffer for stimuli received through the senses.