Question

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2018. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2018, $400,000; sales and purchases from January 1, 2018, to May 1, 2018, $1,220,000 and $945,000, respectively. California consistently reports a 35% gross profit. The estimated inventory on May 1, 2018, is:

Answer 1

$552,000

Step-by-step explanation:

The computation of the estimated inventory as on May 1 , 2018 is shown below:

= Inventory as on Jan 1 + Purchase + Gross profit - Sales

= $400,000 + $945,000 + $427,000 - $1,220,000

= $552,000

The gross profit is

= $1,220,000 × 35%

= $427,000

We simply applied the above formula so that the estimated inventory could come