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,$300,000;sales and purchases from January 1,2016,to May 1,2016,$1,300,000 and $875,000,respectively.California consistently reports a 40% gross profit.The estimated inventory on May 1,2016,is:
A)$302,500.
B)$360,000.
C)$395,000.
D)$455,000.

Question

Quizplus · Accepted Answer

The estimated inventory on May 1, 2016, is $395,000. This is calculated as follows:Beginning inventory: $300,000Add: Purchases: $875,000Less: Sales: $1,300,000Estimated inventory: $395,000