The following information appears in Molsone Company's records for the year ended December 31: On December 31,a physical inventory revealed that the ending inventory was only $210,000.Molsones gross profit on net sales has remained constant at 30 percent in recent years.Molsone suspects that some inventory may have been pilfered by one of the company's employees.At December 31,what is the estimated cost of missing inventory?

Question

The following information appears in Molsone Company's records for the year ended December 31:  On December 31,a physical inventory revealed that the ending inventory was only $210,000.Molsones gross profit on net sales has remained constant at 30 percent in recent years.Molsone suspects that some inventory may have been pilfered by one of the company's employees.At December 31,what is the estimated cost of missing inventory?

Quizplus · Accepted Answer

If the gross profit on net sales is at a constant rate of 30%, then the cost of goods sold can be calculated as follows:

Cost of goods sold = Net sales x (100% - Gross profit%) 
= $700,000 x (100% - 30%) 
= $700,000 x 70% 
= $490,000

To estimate the cost of missing inventory, we need to take into account the actual ending inventory of $210,000 and the cost of goods sold of $490,000. The estimated cost of missing inventory would be the difference between these two amounts:

Estimated cost of missing inventory = Cost of goods sold – Ending inventory 
= $490,000 - $210,000 
= $280,000

Therefore, the estimated cost of missing inventory is $280,000. However, this amount may not be accurate since it is based on assumptions and estimates. The best answer choice given is B, which is the closest to the calculated amount.

The Following Information Appears in Molsone Company's Records for the Year