In step 2 of the gross profit method, the estimated cost of goods sold is calculated by:

• A. Subtracting estimated ending inventory from the cost of goods available for sale
• B. Adding net sales to beginning inventory
• C. Subtracting purchases from beginning inventory
• D. Multiplying net sales by the gross profit rate

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the gross profit method. This method is used to estimate the cost of goods sold and ending inventory when physical inventory counts are not available. It relies on the relationship between sales, cost of goods sold, and gross profit rate.
2. Step 2: Recall the formula for cost of goods available for sale. It is calculated as: \( \text{Beginning Inventory} + \text{Purchases} \). This represents the total inventory available during the period.
3. Step 3: Recognize that the estimated cost of goods sold is calculated by subtracting the estimated ending inventory from the cost of goods available for sale. The formula is: \( \text{Cost of Goods Available for Sale} - \text{Estimated Ending Inventory} \).
4. Step 4: Note that the estimated ending inventory can be derived using the gross profit rate. The gross profit rate is applied to net sales to estimate gross profit, and then subtracted from net sales to estimate the cost of goods sold.
5. Step 5: Use the relationship between net sales, gross profit rate, and cost of goods sold to verify the calculation. Ensure that the subtraction of estimated ending inventory from the cost of goods available for sale aligns with the gross profit method.