On December 31, a Company Needed to Estimate Its Ending

question 146

Multiple Choice

On December 31, a company needed to estimate its ending inventory to prepare its fourth quarter financial statements. The following information is currently available: Inventory as of October 1: $12,500
Net sales for fourth quarter: $40,000
Net purchases for fourth quarter: $27,500
The company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:

• A)$4,000
• B)$6,000
• C)$10,000
• D)$16,000
• E)$34,000

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Definitions:

Amortized

The process of paying off a debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date.

Compounded Semi-annually

A technique used to compute interest in which the interest is compounded semi-annually by being added to the principal sum two times within the year.

Compounded Quarterly

The process where interest on an investment is calculated and added to the principal every three months, contributing to the growth of the investment amount.

Compounded Monthly

Entails the regular addition of interest to the principal balance of a loan or deposit every month, affecting overall returns or costs.