Question

In 2018, Puppy Specialties experienced a major loss due to a fire in the warehouse. The fire destroyed its entire inventory. The company began the year with inventory of $598. It made purchases of $2,400 but returned $24 worth of merchandise. Sales prior to the fire were $3,945. Puppy Specialties must use the gross profit method to determine inventory on hand on the date of the fire. Below is an excerpt of its income statement for the last year.

	2017
Net Sales	$3,735
Cost of Goods Sold	1,494
Selling and Administrative Expenses	461
Income from Operations	$1,729

Instructions:

Assume that Puppy Specialties uses the most recent year to determine the gross profit percentage, calculate the following amounts for the year 2018.

Estimated Cost of Goods Sold
Estimated Gross Profit
Estimated Ending Inventory destroyed by the fire

Answer 1

Gross profit percentage = (Sales - Cost of goods sold) / Sales * 100

= ($3,735 - $1,494) / $3,735 * 100

= 60%

Gross profit = Sales * Gross profit percentage

= $3,735 * 60%

= $2,241

Cost of goods sold = Sales - Gross profit

= $3,735 - $2,241

= $1,494

Beginning inventory	$598
Net purchases ($2,400 - $24)	$2,376
Cost of goods available for sale	$2,974
Cost of goods sold	($1,494)
Ending inventory	$1,480

Estimated cost of goods sold	$1,494
Estimated Gross profit	$2,241
Estimated ending inventory destroyed by the fire	$1,480