Question

On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation....

On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available:

Sales, January 1 through July 8 $ 691,000
Inventory, January 1 130,000
Purchases, January 1 through July 8 654,000
Gross profit ratio 26 %


What is the estimated inventory on July 8 immediately prior to the fire?

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Answer #1

Sales = $691,000

Gross profit ratio = 26%

Gross profit = Sales x Gross profit ratio

= 691,000 x 26%

= $179,660

Cost of goods sold = Sales - Gross profit

= 691,000-179,660

= $511,340

Cost of goods sold = Inventory, January 1 + Purchases- Ending inventory

511,340 = 130,000+654,000-Ending inventory

Ending inventory = $272,660

the estimated inventory on July 8 immediately prior to the fire is $272,660

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