A substantial portion of inventory owned by Prentiss Sportin

A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records: Beginning inventory Purchases to date of storm Sales to date of storm $204,600 396,300 603,200 The value of undamaged inventory counted was $90,276. Historically Prentiss\' gross margin percentage has been approximately 18 percent of sales. Required Estimate the following: a. Gross margin in dollars. b. Cost of goods sold in dollars c. Ending inventory Estimated ending inventory d. Amount of lost inventory Inventory lost

Solution

Answer a Gross Margin in dollar = Sales * Gross Margin % = $603200 * 18% = $1,08,576 Answer b Cost of goods sold in dollars = Sales - Gross Margin = $603200 - $108576 = $4,94,624 Answer c Estimated Ending Inventory Beginning Inventory $204,600 Add : Purchases $396,300 Less : Cost of goods sold $494,624 Estimated Ending Inventory $106,276 Answer d Amount of lost inventory = Estimated Ending Inventory - value of undamaged inventory counted Amount of lost inventory = $1,06,276 - $90,276 = $16,000