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, $310,000; sales and purchases from January 1, 2021, to May 1, 2021, $1,280,000 and $905,000, respectively. California consistently reports a 30% gross profit. The estimated inventory on May 1, 2021, is:"

Answer 1

California Inc Estimated ending inventory is $319,000

Explanation:

Goods available for sale = Beginning inventory + Net purchases

• California Inc Beginning inventory $310,000
• California Inc Net purchases = $905,000
• California Inc Goods available for sale = $1,215,000

Gross profit = Net sales *  profit %

• California Inc Net sales = $1,280,000
• California Inc gross profit = 30%  
• California Inc gross profit = $384,000

Estimated cost of goods sold = Net sales - Gross profit

• California Inc Estimated cost of goods sold = $1,280,000 - $384,000
• California Inc Estimated cost of goods sold = $896,000

Estimated ending inventory = Goods available for sale - Cost of goods sold

• California Inc Estimated ending inventory = $1,215,000 - $896,000
• California Inc Estimated ending inventory = $319,000

California Inc Estimated ending inventory is $319,000