Check your answer
Write your response and explain your reasoning.
For a bounded gross-profit estimate, Northstar has $30,000 beginning inventory, $90,000 net purchases, $150,000 net sales, and a supplied 28 percent historical gross margin on sales.
A separate average-cost retail pool has $126,000 goods available at cost, $210,000 at retail, and $162,000 net sales. No markup, markdown, return, transfer, discount, or shrinkage extensions are supplied.
Compute both estimates and reconcile their inputs. Then state their purpose and the ownership, quantity, condition, mix, margin, movement, and variant evidence they cannot prove. Use ASC 330-10-30-13 for the retail-method context; do not present it as authority for the gross- profit formula.
Compare your reasoning with the worked answer
Gross-profit method: goods available at cost are $120,000. Estimated gross profit is 28 percent of $150,000, or $42,000. Estimated cost of goods sold is $108,000, leaving estimated inventory of $12,000.
Average-cost retail method: the cost-to-retail ratio is $126,000 divided by $210,000, or 60 percent. Net sales of $162,000 leave $48,000 at retail. Estimated ending inventory at cost is $28,800.
These calculations reproduce the supplied relationships. They do not prove ownership, units, condition, current margin, omitted markdowns, returns, transfers, shrinkage, or that a count is unnecessary. The gross-profit method needs a stated purpose and representative rate. The retail estimate needs a declared variant and complete pool movements.