Question

Kroeger 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, $320,000; sales and purchases from January 1, 2021, to May 1, 2021, $1,240,000 and $935,000, respectively. Kroeger consistently reports a 35% gross profit. The estimated inventory on May 1, 2021, is:

Multiple Choice

• $414,000.

• $509,000.

• $449,000.

• $451,000.

Answer 1

Beginning inventory = $320,000

Purchases = $935,000

Sales = $1,240,000

Gross profit = 35% of sales

Gross profit = 1,240,000 x 35%

= $434,000

Costs of goods sold = Sales - Gross profit

= 1,240,000-434,000

= $806,000

Cost of goods sold = Beginning inventory + Purchases-Ending inventory

806,000 = 320,000+935,000-Ending inventory

Ending inventory = $449,000

The estimated inventory on May 1, 2021, is = $449,000

Third option is correct.

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Thanks!!!