Question

Keen Company's accounting records indicated the following information: A physical inventory taken on December 31, 2012, resulted in an ending inventory of $1, 050,000. Keen's gross profit on sales has remained constant at 25% in recent years. Keen suspects some inventory may have been taken by a new employee. At December 31, 2012, what is the estimated cost of missing inventory?

a. $75,000.
b. $225,000.
c. $300,000.
d. $375,000.

Answer 1

a. $75,000.

Step-by-step explanation:

The computation of the estimated cost of missing inventory is as follows

But before that the cost of goods sold is

The cost of goods sold is

= $5,700,000 × 0.75

= $4,275,000

Now as we know that

Closing Inventory = opening inventory + Purchases - Cost of goods sold

= 900,000 + 4,500,000 - 4,275,000

= $1,125,000

But it reveals that the ending inventory is $1,050,000

So, the missing inventory is

= $1,125,000 - $1,050,000

= $75,000