The following information was obtained from Smith Co.:
Smith's gross margin is 20%. What amount represents Smith purchases?
$208,000
$232,000
$220,000
$202,000
Choice "A" is correct. Using the BASE account analysis format, purchases can be squeezed out as follows:
Beginning Inventory (given)
30,000
Purchases (squeezed)
208,000
Goods available for sale (added up)
238,000
COGS (275,000 x 1-.20)
(220,000)
Ending Inventory (given)
18,000
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