Gore Company's accounting records indicated the following information: $\begin{array}{lr}
\text { Inventory, 1/1/07 } & 600,000 \
\text { Purchases during 2007 } & 3,000,000 \
\text { Sales during 2007 } & 3,800,000
\end{array}$
A physical inventory taken on December 31, 2007, resulted in an ending inventory of $700,000.Gore's gross profit on sales has remained constant at 25% in recent years.Gore suspects some inventory may have been taken by a new employee.At December 31, 2007, what is the estimated cost of missing inventory?
A)$50,000.
B)$150,000.
C)$200,000.
D)$250,000.

Question

Gore Company's accounting records indicated the following information: $\begin{array}{lr}
\text { Inventory, 1/1/07 } & 600,000 \
\text { Purchases during 2007 } & 3,000,000 \
\text { Sales during 2007 } & 3,800,000
\end{array}$
 A physical inventory taken on December 31, 2007, resulted in an ending inventory of $700,000.Gore's gross profit on sales has remained constant at 25% in recent years.Gore suspects some inventory may have been taken by a new employee.At December 31, 2007, what is the estimated cost of missing inventory?
A)$50,000.
B)$150,000.
C)$200,000.
D)$250,000.

Quizplus · Accepted Answer

The correct answer is A.The estimated cost of missing inventory is $50,000. This is calculated as follows:Cost of goods sold = Sales - Gross profit= $3,800,000 - (25% x $3,800,000)= $2,850,000Ending inventory = $700,000Beginning inventory = $600,000Purchases = $3,000,000Cost of goods available for sale = $3,600,000Cost of goods sold + Ending inventory = $3,550,000Missing inventory = $3,600,000 - $3,550,000= $50,000

Gore Company's Accounting Records Indicated the Following Information A Physical Inventory Taken on December 31, 2007, Resulted in Inventory