Question

A fire destroys all of the merchandise of Assante Company on February 10, 2017. Presented below is information compiled up to the date of the fire. Inventory, January 1, 2017 $ 400,000 Sales revenue to February 10, 2017 1,950,000 Purchases to February 10, 2017 1,140,000 Freight-in to February 10, 2017 60,000 Rate of gross profit on selling price 40% What is the approximate inventory on February 10, 2017?

Short answer

The inventory as of February 10, 2017, equals $430,000.

Step-by-step solution

Calculation of cost of goods sold

The cost of goods sold is calculated as follows:

$\begin{array}{rcl}\mathrm{Cost}\mathrm{of}\mathrm{Goods}\mathrm{Sold}& =& \mathrm{Sales}\mathrm{Revenue}-\left(\mathrm{Sales}\mathrm{revenue}\times \mathrm{Gross}\mathrm{profit}\mathrm{rate}\right)\\ & =& \$1,950,000-\left(1,950,000\times 40\%\right)\\ & =& \$1,170,000\end{array}$

Calculation of cost of goods available for sale

The cost of goods available for sale is calculated as follows:

$\begin{array}{rcl}\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{available}\mathrm{for}\mathrm{sale}& =& \mathrm{Beginning}\mathrm{Inventory}+\mathrm{Purchases}+\mathrm{Freight}-\mathrm{in}\\ & =& \$400,000+\$1,140,000+\$60,000\\ & =& \$1,600,000\end{array}$

Calculation of inventory on February 10, 2017

The inventory on February 10, 2017, is calculated as follows:

$\begin{array}{rcl}\mathrm{Inventory}\mathrm{on}\mathrm{February}10,2017& =& \mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{available}\mathrm{for}\mathrm{sale}-\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}\\ & =& \$1,600,000-\$1,170,000\\ & =& \$430,000\end{array}$

Thus, the inventory on February 10, 2017, equals $430,000.