Question

On May 2, a fire destroyed the entire merchandise inventory on hand of Sanchez Wholesale Corporation. The following information is available:

Sales, January 1 through May 2 $360,000
Inventory, January 1 80,000
Merchandise purchases, January 1 through May 2 (including $40,000 of goods in transit on May 2, shipped f.o.b. shipping point)
330,000
Markup percentage on cost
20%
What is the estimated inventory on May 2 immediately prior to the fire?
a) $ 70,000
b) $ 82,000
c) $110,000
d) $122,000

Answer 1

The estimated inventory on May 2 immediately prior to the fire for Sanchez Wholesale Corporation would be $122,000, calculated using beginning inventory plus purchases minus the cost of goods sold, which takes into account a 20% markup on sales.

Step-by-step explanation:

To estimate the inventory on May 2 immediately prior to the fire for Sanchez Wholesale Corporation, we can use the available data to calculate the cost of goods sold (COGS) and then estimate the ending inventory. The formula to estimate the ending inventory is:

Ending Inventory = Beginning Inventory + Purchases - COGS.

To find COGS, we can use the sales and markup percentages. The markup is 20%, so the cost is 100% (selling price) - 20% (markup) = 80% of the selling price.

COGS = Sales × (100% - Markup%) = $360,000 × 80% = $288,000.

Next, we can calculate the estimated inventory:

Ending Inventory = $80,000 (Beginning Inventory) + $330,000 (Purchases) - Goods in transit (FOB shipping point is included in purchases) - $288,000 (COGS) = $80,000 + $330,000 - $288,000 = $122,000.

Thus, the estimated inventory on May 2 immediately before the fire would be $122,000, making option (d) the correct answer.