California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2018. In preparing its insurance claim on the inventory loss, the company developed the following dа ta: Inventory January 1, 2018, $300,000; sales and purchases from January 1, 2018, to May 1, 2018, $1,300,000 and $875,000, respectively. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2018, is:

A. $302,500.

B. $360,000.

C. $395,000.

D. $455,000

estimated inventory is $395000

C is correct option

Explanation:

given data

Inventory = $300000

sales = $1300000

purchases = $875000

gross profit = 40%

to find out

estimated inventory

solution

we find estimated inventory by this formula

estimated inventory = Inventory + purchases - (100% - 40%) sale

put here all value

estimated inventory = 300000 + 875000 - (100% - 40%) 1300000

estimated inventory = 300000 + 875000 - 780000

estimated inventory = 395000

so estimated inventory is $395000

C is correct option

The correct answer to the following question is option C) $395,000

Explanation:

Given information -

Inventory as of January 1,2018 = $300,000

Purchase from January to May = $875,000

Sale from January to May = $1300,000

Gross profit reported by California inc = 40%

Here fro calculating the estimated inventory as of May 1, 2018 -

Inventory as of January 1,2018 + Purchase + Gross profit - Sales

= $300,000 + $875,000 + ($1300,000 x 40%) - $1300,000

= $1175,000 + $520,000 - $1300,000

= $1695,000 - $1300,000

= $395,000