The estimated cost of missing inventory can be calculated by using the gross profit method. According to the information given, the cost of goods sold can be calculated as follows:
Cost of Goods Sold = Cash Sales + Collections on Accounts Receivable - Accounts Receivable (Jan 1, 2018) + Accounts Receivable (Dec 31, 2018)
Cost of Goods Sold = 1,400,000 + 7,200,000 - 1,000,000 + 1,200,000
Cost of Goods Sold = 8,800,000
The estimated missing inventory can be calculated by multiplying the cost of goods sold by the gross profit percentage:
Estimated Missing Inventory = Cost of Goods Sold * Gross Profit Percentage
Estimated Missing Inventory = 8,800,000 * 40%
Estimated Missing Inventory = 3,520,000
However, we need to adjust this amount by considering the purchases and shipment received but not recorded as purchases. Therefore, the estimated cost of missing inventory is:
Estimated Cost of Missing Inventory = Estimated Missing Inventory - Purchased during 2018 - Shipment received on Dec 26, 2018
Estimated Cost of Missing Inventory = 3,520,000 - 5,640,000 - 40,000
Estimated Cost of Missing Inventory = -2,160,000
Since the result is negative, it means that there is an overstatement of inventory. Therefore, the estimated cost of missing inventory is P 160,000.