Part VI 16 Points Gross Profit Method ABC Incorporated had a

Part VI. (16 Points) Gross Profit Method ABC Incorporated had a fire in their warehouse on December 7. An inventory taken the morning after a fire discloses $24,500 of undamaged goods (at retail) on hand and goods with a salvage value of $5,700 that were damaged. The following additional data are available from the books: Inventory on hand, December 1 Purchases received, December 1 to7 Sales (goods delivered to customers), December 1 to 7 $115,000 98,000 270,000 Past records indicate that the normal gross profit margin is 45% of sales. Estimate the inventory of goods on hand at the close of business on December 7 by the gross profit method and determine the amount of inventory lost in the fire. Show appropriate title for all amounts in your presentation. REQUIRED:

Solution

Inventory of goods on hand at the close of business on December 7 = $115000 + $98000 - ($270000x55/100)

= $64,500

Amount of Inventory lost in the fire = $64500 - $24500 = $40,000 for which salvage value is $5,700.
Net value lost = $40000 - $5700 = $34,300