The following information is available for October for Clarita Company

Accounting Nov 30, 2020

The following information is available for October for Clarita Company. Beginning inventory $350,000 Net purchases 1,050,000 Net sales 2,100,000 Percentage markup sales 66.67% A fire destroyed Clarita's October 31 inventory, leaving undamaged inventory with a cost of $21,000. Using the gross profit method, the estimated ending inventory destroyed by fire is approximately $679,000. O $119,000. O $560,000 O $700,000.

Expert Solution

Correct option is "A" -679000

Cost of goods sold = Net sales [1- % markup on sales]

= 2100000 [1- .6667]

= 2100000* .3333

= 699930

Now,

Cost of goods sold =Beginning inventory + net purchases- ending inventory

699930 = 350000 + 1050000- Ending inventory

699930 = 1400000- Ending inventory

Ending inventory = 1400000-699930

= 700070

Ending inventory destroyed by fire = Ending inventory - undamaged inventory

= 700070 - 21000

= 679070 (rounded to 679000)

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