On September 30 a Company Needed to Estimate Its Ending

question 19

Multiple Choice

On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements. The following information is available: Beginning inventory, July 1: $4,000
Net sales: $40,000
Net purchases: $41,000
The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold would be:

• A) $4,000.
• B) $5,000.
• C) $21,000.
• D) $25,000.
• E) $34,000.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year by comparing current assets to current liabilities.

Account Receivable

Money owed to a company by its customers for goods or services that have been delivered but not yet paid for.

Return on Equity

A measure of a corporation’s profitability that reveals how much profit a company generates with the money shareholders have invested.

Return on Assets

A financial ratio that measures the profitability of a company in relation to its total assets, indicating how efficiently a company uses its assets to generate profit.