Question

An auto dealer reported $500,000 worth of automobiles on its lot at the end of May to its insurer. On June 10, it received $200,000 worth of cars. By June 20, the dealership sold $100,000 worth of cars. A hail store on June 21 caused $50,000 worth of damage to the inventory. Without considering deductibles, how much will the insurer pay for damages?

1) $35,700
2) $40,000
3) $41,700
4) $50,000

Answer 1

To calculate the insurer's payment for damages, subtract the value of damaged inventory from the total inventory value. The insurer will pay $41,700 for the damages.

Step-by-step explanation:

To calculate how much the insurer will pay for damages, we need to track the changes in the inventory value. At the end of May, the dealership reported $500,000 worth of automobiles. On June 10, they received $200,000 worth of cars. By June 20, they sold $100,000 worth of cars. On June 21, the inventory suffered $50,000 worth of hail damage.

To calculate the insurer's payment for damages, we need to subtract the value of damaged inventory from the total inventory value at the end of May:

$500,000 - $50,000 = $450,000

Therefore, the insurer will pay $450,000 for the damages. The correct answer is option 3) $41,700.