Question

PT Barnum Company uses the periodic inventory system and has the following data from its December accounting records:

Sales $44,000
Sales Returns & Allowances $3,960
Freight In on Inventory Purchases $400
Delivery Expense on Sales $300
Purchase Returns & Allowances $500
Purchases $21,920
Inventory December 1 $13,726
Average gross profit percentage = 25%
Because of a wildcat strike by Barnum’s warehouse employees that prevents an inventory count, Barnum decides to use the "Gross Profit Method" to estimate the December 31 Inventory for purpose of generating its monthly financials.
Required 1: What is the "Cost of Merchandise Available for Sale" for PT Barnum? $ Required 2: What is the net cost of purchases that will be used to calculate PT Barnum net income? $
Required 3: What is the amount of net sales that will be used to calculate PT Barnum net income? $
Required 4: What is the Cost of Goods Sold that will be used to calculate PT Barnum net income? $
Required 5: What is the Gross Profit that will be reported in PT Barnum Income Statement? $
Required 6: What is the value of Ending Inventory PT Barnum will report in the Balance Sheet of December 31st? $

Answer 1

The Cost of Merchandise Available for Sale for PT Barnum is $36,046. The net cost of purchases that will be used to calculate PT Barnum net income is $21,420. the amount of net sales that will be used to calculate PT Barnum net income is $40,040. The Cost of Goods Sold that will be used to calculate PT Barnum net income is $10,010. The Gross Profit that will be reported in PT Barnum Income Statement is $30,030. The value of Ending Inventory PT Barnum will report in the Balance Sheet of December 31st is $26,036.

Step-by-step explanation:

The Cost of Merchandise Available for Sale for PT Barnum can be calculated by adding the Inventory on December 1 ($13,726) with the Purchases ($21,920) and the Freight In on Inventory Purchases ($400). Therefore, the Cost of Merchandise Available for Sale is $13,726 + $21,920 + $400 = $36,046. The net cost of purchases that will be used to calculate PT Barnum net income can be calculated by subtracting the Purchase Returns & Allowances ($500) from the Purchases ($21,920). Therefore, the net cost of purchases is $21,920 - $500 = $21,420. The amount of net sales that will be used to calculate PT Barnum net income can be calculated by subtracting the Sales Returns & Allowances ($3,960) from the Sales ($44,000). Therefore, the amount of net sales is $44,000 - $3,960 = $40,040.

The Cost of Goods Sold that will be used to calculate PT Barnum net income can be calculated by multiplying the net sales ($40,040) by the average gross profit percentage (25%). Therefore, the Cost of Goods Sold is $40,040 * 0.25 = $10,010 The Gross Profit that will be reported in PT Barnum Income Statement can be calculated by subtracting the Cost of Goods Sold ($10,010) from the net sales ($40,040). Therefore, the Gross Profit is $40,040 - $10,010 = $30,030. The value of Ending Inventory PT Barnum will report in the Balance Sheet of December 31st can be calculated by subtracting the Cost of Goods Sold ($10,010) from the Cost of Merchandise Available for Sale ($36,046). Therefore, the value of Ending Inventory is $36,046 - $10,010 = $26,036.