Question

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2021. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2021, $300,000; sales and purchases from January 1, 2021, to May 1, 2021, $1,120,000 and $925,000, respectively. California consistently reports a 35% gross profit. The estimated inventory on May 1, 2021, is:

Answer 1

Calculation of estimated inventory on May, 1, 2021
	$	$
Beginning inventory		300,000.00
Add: Net purchase		925,000.00
Goods Available for sale		1,225,000.00
Less: Cost of goods sold:
Net sales	1,120,000.00
Less: Estimated gross profit (1,120,000*35%)	(392,000.00)
Estimated cost of goods sold		(728,000.00)
Estimated ending inventory on May 1,2021		497,000.00