Question

A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2021. Accounting records on that date indicated the following:

Merchandise inventory, January 1, 2021 $ 2,060,000

Purchases to date 5,960,000

Freight-in 560,000

Sales to date 9,800,000

The gross profit ratio has averaged 25% of sales for the past four years. Required: Use the gross profit method to estimate the cost of the inventory destroyed in the fire.

Answer 1

Particulars	Amount	Amount
Merchandise Inventory on January 01 2021		$2,060,000
Purchases		$5,960,000
Frieght In		$560,000
Cost of Goods Available for Sale		$8,580,000
Less: Cost Of Goods Sold
Sales	$9,800,000
Less: Estimated Gross profit of 25%	($2,450,000)	($7,350,000)
Estimated Loss from fire		($1,230,000)