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A fire destroys all of the merchandise of Assante Company on February 10, 2014
A fire destroys all of the merchandise of Assante Company on February 10, 2014. Presented below is information compiled up to the date of the fire.
| Inventory, January 1, 2014 | $400,000 |
| Sales revenue to February 10, 2014 | $1,950,000 |
| Purchases to February 10, 2014 | $1,140,000 |
| Freight-in to February 10, 2014 | $60,000 |
| Rate of gross profit on selling price | 40% |
What is the approximate inventory on February 10, 2014?
Expert Solution
Gross profit in dollars = Sales revenue * Gross profit on selling price
Gross profit in dollars = 1,950,000 * 40%
Gross profit in dollars = 1,950,000 * 0.40
Gross profit in dollars = $780,000
Cost of goods sold = Sales revenue - Gross profit in dollars
Cost of goods sold = 1,950,000 - 780,000
Cost of goods sold = 1,170,000
Total purchases include freight = Purchases + Freight-in
Total purchases include freight = 1,140,000 + 60,000
Total purchases include freight = $1,200,000
Closing inventories = Opening inventories + Total purchases include freight - Cost of goods sold
Closing inventories = 400,000 + 1,200,000 - 1,170,000
Closing inventories = $430,000
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