Kids Costumes estimates its ending merchandise inventory by the gross profit method. The gross profit has averaged 39% of net sales. The company’s ­merchandise inventory records reveal the following data:

Merchandise Inventory, July 1 ........$ 268,000

Transactions during July: Purchases ...... 7,661,000

Purchase Discounts ............. 171,000

Purchase Returns and Allowances ........ 32,000

Sales .................. 8,788,000

Sales Returns and Allowances ........ 35,000

Requirements

1. Estimate the cost of the July 31 merchandise inventory, using the gross profit method.

2. Prepare the July 2015 partial income statement through gross profit for Kids Costumes.