Question

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2016. In preparing its insurance claim on the Inventory loss, the company developed the following data: inventory January 1, 2016, $340,000; sales and purchases from January 1, 2016, to May 1, 2016, $1,160,000 and $885,000, respectively. California consistently reports a 30% gross prom. The estimated inventory on May 1. 2016. is: $473,000. $414,400. $378,000. $413,000.

Answer 1

Option (d) is correct.

Step-by-step explanation:

Inventory as at may 1:

= Inventory as at January 1 + Purchase + Gross profit - Sales

= 340,000 + 885,000 + ( 1,160,000 × 30%) - 1,160,000

= 340,000 + 885,000 + $348,000 - $1,160,000

= $413,000.

The estimated inventory on May 1, 2016 is $413,000.

Workings:

Gross Profit = sales × 30%

= 1,160,000 × 30%

= $348,000