Question

Florence Inc. 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 data: Inventory Jan1, 2018, $470,000; sales and purchases from Jan 1, 2018, to May 1, 2018, $1,260,000 and $895,000, respectively. Florence consistently reports a 30% gross profit.

The estimated inventory on May 1, 2018, is:

Answer 1

$483,000

Step-by-step explanation:

The computation of the estimated inventory on May 1, 2018, is shown below:

= Inventory as on Jan 1, 2018 + purchase of inventory + sales on inventory × gross profit rate - sales on inventory

= $470,000 + $895,000 + $1,260,000 × 30% - $1,260,000

= $470,000 + $895,000 + $378,000 - $1,260,000

= $483,000

By applying the above formula we can get the ending estimated inventory