On July 23, the company’s inventory was destroyed in a hurricane-related flood. For insurance purposes, the company must reliably estimate the amount of inventory on hand on July 23. The company uses a periodic inventory system. The following data have been assembled:
Inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000
Purchases, January 1–July 23 . . . . . . . . . . . . . . . . . . . . . . . . 3,700,000
Sales, January 1–July 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000
Historical gross profit percentages:
Last year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%
Two years ago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55%
Estimate the company’s inventory as of July 23 using
(1) Last year’s gross profit percentage and
(2) The gross profit percentage from two years ago.