Reconstructing profit from incomplete records Steps:

• Sales = cash from customers + closing trade receivables (opening = 0) = $70,000 +$40,000 = $110,000.
• Purchases = cash paid to suppliers + closing trade payables (opening = 0) = $50,000 +$60,000 = $110,000.
• Cost of goods sold = opening inventory (0) + purchases - closing inventory = $0 +$110,000 - $20,000 =$90,000.
• Profit = sales - cost of goods sold = $110,000 -$90,000 = $20,000.

Why B is correct:

• Gross profit equals sales revenue minus cost of goods sold, reconstructed via cash flows and year-end balances per accounting principles for sole traders with incomplete records.

Why the others are wrong:

• A. Overstates by $4,000, likely from erroneously reducing purchases by inventory instead of COGS.
• C. Overstates by $7,000, possibly from ignoring payables in purchases calculation.
• D. Overstates by $8,000, perhaps from excluding receivables from sales.

Final answer: B