Over the last two years, Allison Company has averaged 35 percent gross profit. At the end of 20X1, the auditor found the following data in the records of the company:

Inquiry by the auditor revealed that employees of Allison Company had estimated the inventory on December 31, 20X1, instead of taking a complete physical count.

INSTRUCTIONS
Using the gross profit method of inventory estimation, verify the reasonableness (or lack of reasonableness) of the inventory estimate made by the company’s employees.
Analyze: If a physical inventory count on December 31, 20X1, revealed an ending inventory of $130,000, calculate the gross profit percentage.

Transcribed Image Text:

Sales Cost of goods sold: Inventory, January 1, 20X1 Purchases Total merchandise available for sale Less inventory, December 31, 20X1 Cost of goods sold Gross profit on sales $ 105,000 1,045,000 1,150,000 151,000 $1,540,000 999,000 $ 541,000