Question

The following information is available for October for Pharoah Company. Beginning inventory $390000 Net purchases 1130000 Net sales 2260000 Percentage markup on cost 66.67%

A fire destroyed Pharoah’s October 31 inventory, leaving undamaged inventory with a cost of $23000. Using the gross profit method, the estimated ending inventory destroyed by fire is

A)740000.

B)$602667.

C)$141000

. D)$579667.

Answer 1

• All working forms part of the answer
• Working

A	Net Sales	$      2,260,000.00
B= 100% + 66.67%	% of sales on Cost	166.67%
C = A/B	Cost of Goods Sold	$      1,356,000.00

• Answer = Option ‘C’ $ 141,000

Beginning Inventory	$          390,000.00
Net Purchases	$      1,130,000.00
Less: Cost of Goods Sold	$      1,356,000.00
Total Ending Inventory	$          164,000.00
Less: Undamaged Inventory	$            23,000.00
Ending inventory damaged by fire	$          141,000.00
Correct Answer	Option 'C' $ 141,000