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28 March, 15:25

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2016. In preparing its insurance claim on the Inventory loss, the company developed the following dа ta: inventory January 1, 2016, $340,000; sales and purchases from January 1, 2016, to May 1, 2016, $1,160,000 and $885,000, respectively. California consistently reports a 30% gross prom. The estimated inventory on May 1. 2016. is: $473,000. $414,400. $378,000. $413,000.

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  1. 28 March, 15:33
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    Option (d) is correct.

    Explanation:

    Inventory as at may 1:

    = Inventory as at January 1 + Purchase + Gross profit - Sales

    = 340,000 + 885,000 + (1,160,000 * 30%) - 1,160,000

    = 340,000 + 885,000 + $348,000 - $1,160,000

    = $413,000.

    The estimated inventory on May 1, 2016 is $413,000.

    Workings:

    Gross Profit = sales * 30%

    = 1,160,000 * 30%

    = $348,000
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