CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

McDonald Golf Supplies sells merchandise inventory at a gross profit of 45% of sales price. In September 2015, a fire destroyed the entire inventory. From the accounting records, beginning inventory was $248,000 and purchases up to the time of the fire were $674,000. Sales up to the time of the fire were $1,290,000. What was the value of the inventory destroyed?

A. $212,500
B. $341,500
C. $414,900
Correct Answer: A

Ending Inventory = ($248,000 + $674,000) - [$1,290,000 x (1 - 0.45)] = $212,500

User Contributed Comments 6

User Comment
stranger Sales = Gross Profit(.45 of sales) + COGS(.55 of sales) COGS=.55*Sales=.55*1,290,000=709,500 Inventory Destroyed = Inventory in stock = Ending inventory = B.Inv + Purchases - COGS = 248000 + 674000 - 709500 = 212500
danlan COGS > purchase, so the ending inventory < beginning inventory, and A is the only possible answer.
Khadria 45% of sales price means the cost of inventory is (1 - 0.45) x Sales price
rgat EI = BI + P - COGS
BI = 248K; P = 674K; COGS = ?
Gross Profit = Sales - COGS
Sales = 1,29 mil; GProfitMar = 45%
Gross Profit Margin = (Sales - COGS) / Sales
.45 = (1,29 mil - COGS) / 1,29 mil
COGS = 709,500
EI = 248K +674K - 709,500 = 212,500
cfairs Use the two formula to arrive at the answer A:

BegInv + Purchases = COGS + EndInv
Gross Profit = Sales - COGS
8thlegend Simple formula
Cogs = Beg inv + purchases - end inv.
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