The following information is available for the Silver Company for the 3 months ended March 31, year 2. Merchandise inventory, January 1, year 2 $900,000 Purchases 3,400,000 Freight-in 200,000 Sales 4,800,000 The gross margin recorded was 25% of sales. What should be the merchandise inventory at March 31, year 2

$900,000

Explanation:

The computation of the ending merchandise inventory is shown below:

= Cost of goods available for sale - Cost of goods sold

= Beginning inventory + Purchase made + direct expenses

= $900,000 + $3,400,000 + $200,000

= $4,500,000

And, the cost of goods sold is

= Sales - gross profit

= $4,800,000 - (25% of $4,800,000)

= $3,600,000

Now the ending merchandise inventory is

= $4,500,000 - $3,600,000

= $900,000

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