Question

On September 1 of the current year, Scots Company experienced a flood that destroyed the company's entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $216,350. Inventory purchased during August was $192,890. Sales for the month of August were $544,300. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.a. $82,660b. $135,060c. $191,520d. $87,660e. $81,660

Answer 1

amount of inventory destroyed in the flood = $82660

correct option is a. $82660

Step-by-step explanation:

given data

beginning inventory = $216,350

Inventory purchased August = $192,890

Sales of August = $544,300

profit ratio = 40%

to find out

amount of inventory destroyed in the flood

solution

we know here gross profit is 40% of sale

gross profit = 40% of 544,300

gross sale = $217720

so

amount of inventory destroyed in the flood = Beginning + purchase + gross sale - sale

amount of inventory destroyed in the flood = 216350 + 192890 + 217720 - 544300

amount of inventory destroyed in the flood = $82660