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5. A fire destroyed the inventory of Abba Cadabba on April 15. The following data were...

5. A fire destroyed the inventory of Abba Cadabba on April 15. The following data were found to be in the accounting records: Beginning Merchandise Inventory, January 1 $20,000 Purchases from January 1 to April 15 38,000 Purchase Returns and Allowances 3,500 Freight In 2,225 Sales from January 1 to April 15 86,000 Sales Returns and Allowances 2,500 Abba Cadabba has an estimated gross profit margin over the last three years of 54%.

Required: Calculate the amount of inventory destroyed in the fire using the Gross Profit Method.

Business   Accounting   
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Answer #1
Beginning Merchandise Inventory       20,000
Add: Purchase       38,000
Less: Purchase Returns and Allowances       (3,500)
Add: Freight In         2,225
Cost of goods available for sale       56,725
Less: Cost of goods sold      (45,090)
(86,000 - 2,500) x 54%
Amount of inventory destroyed in the fire      11,635
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