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28 May, 14:36

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 dа ta: Inventory January 1, 2018, $300,000; sales and purchases from January 1, 2018, to May 1, 2018, $1,300,000 and $875,000, respectively. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2018, is:

A. $302,500.

B. $360,000.

C. $395,000.

D. $455,000

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Answers (2)
  1. 28 May, 16:26
    0
    The correct answer to the following question is option C) $395,000

    Explanation:

    Given information -

    Inventory as of January 1,2018 = $300,000

    Purchase from January to May = $875,000

    Sale from January to May = $1300,000

    Gross profit reported by California inc = 40%

    Here fro calculating the estimated inventory as of May 1, 2018 -

    Inventory as of January 1,2018 + Purchase + Gross profit - Sales

    = $300,000 + $875,000 + ($1300,000 x 40%) - $1300,000

    = $1175,000 + $520,000 - $1300,000

    = $1695,000 - $1300,000

    = $395,000
  2. 28 May, 16:48
    0
    estimated inventory is $395000

    C is correct option

    Explanation:

    given data

    Inventory = $300000

    sales = $1300000

    purchases = $875000

    gross profit = 40%

    to find out

    estimated inventory

    solution

    we find estimated inventory by this formula

    estimated inventory = Inventory + purchases - (100% - 40%) sale

    put here all value

    estimated inventory = 300000 + 875000 - (100% - 40%) 1300000

    estimated inventory = 300000 + 875000 - 780000

    estimated inventory = 395000

    so estimated inventory is $395000

    C is correct option
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