Assume a business commences operations with owners' contributions of $20 000 with which it purchases an item of inventory that it later sells for $24 000.If the replacement cost of the inventory at the date of sale is $21 000 the amount the business can distribute and still maintain the same level of operations is:
A) $0
B) $3000
C) $4000
D) $1000

Question

Quizplus · Accepted Answer

The business can distribute $3000 and still maintain the same level of operations. The business started with $20,000 and purchased inventory for $20,000. The inventory was sold for $24,000, resulting in a gain of $4,000. The replacement cost of the inventory at the date of sale is $21,000, so the business has a profit of $3,000. The business can distribute this profit and still maintain the same level of operations.

Assume a Business Commences Operations with Owners' Contributions of $20