Southern California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2011. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2011, $300,000; sales and purchases from January 1, 2011, to May 1, 2011, $1,300,000 and $875,000, respectively. Southern California consistently reports a 40% gross profit. The estimated inventory on May 1, 2011, is: A. $302,500. B. $360,000. C. $395,000. D. $455,000.

In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2011, $300,000; sales and purchases from January 1, 2011, to May 1, 2011, $1,300,000 and $875,000, respectively. Southern California consistently reports a 40% gross profit.

Beginning inventory= 300,000

Purchases= 875,000

Total available for sale= 1,175,000

Cost of goods sold= 1,300,000*0.60= 780,000

Inventory= Total available for sale - COGS

Inventory= 1,175,000 - 780,000= $395,000