Chapter 6, Problem 6.5BYP

(a)

To determine

Gross profit method: It is one of the simplest methods for inventory valuation and it also helps in errors detection. In it, value of ending inventory is calculated by the application of gross profit rate on the net sales of the company.

Gross Profit Rate: It is the financial ratio that evaluates the money left out of the total revenues after deducting the cost of goods sold. Thus, it shows the relationship between the gross profit on sales and net sales.

To determine: The balances in (1). Sales Revenue and (2) Purchases at April 10.

(b)

To determine

The average gross profit rate for the years 2015 and 2016.

(c)

To determine

The inventory loss as a result of the fire (gross profit method.)