Question

Sheridan Corporation recently suffered a fire in its warehouse. The fire destroyed all of the company’s inventory on hand at June 30. The opening inventory on June 1 was $2,632,350. Sheridan purchased an additional $670,000 during June and had sales of $1,240,000 for the month at a gross profit of 32%.

Using the gross profit method, estimate the value of the inventory destroyed in the fire.

Estimated Inventory Destroyed is $

Answer 1

Answer: Estimated value of inventory destroyed = $2,362,956

Workings:

Particulars	Amount		Particulars	Amount
To Opening inventory	2,632,350		By Cost of sales	939,393	[1240000/1.32]
To purchases	670,000		By Cost of Inventory	2,362,956

Since the sales amount of 1,240,000 was effected at 32% Gross profit hence the cost of sales equals [1240000 - 1240000*(32/100)]. This amounts to $939393.

Hence, cost of inventory as on June 30 = Opening inventory + Purchases - Cost of sales = 2632350+670000-939393 => $2,362,956

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