Question

Nash Corporation's April 30 inventory was destroyed by fire. January 1 inventory was $143,800, and purchases for January through April totaled $461,600. Sales revenue for the same period was $646,400. Nast's normal gross profit percentage is 30% on sales. Using the gross profit method, estimate Nash's April 30 inventory that was destroyed by fire.

Answer 1

Using the gross profit method, the estimated inventory destroyed by fire for Nash Corporation on April 30 is $152,920, calculated by subtracting the estimated cost of goods sold from the cost of goods available for sale.

Step-by-step explanation:

To estimate Nash Corporation's April 30 inventory that was destroyed by fire using the gross profit method, we need to calculate the cost of goods sold (COGS) and then the ending inventory. First, we calculate the estimated gross profit by multiplying the sales revenue by the gross profit percentage. Then we subtract the estimated gross profit from the sales revenue to get the estimated cost of goods sold. After that, we add the beginning inventory to the purchases to get the cost of goods available for sale. Finally, we subtract the estimated COGS from the cost of goods available for sale to estimate the ending inventory.

Using the given data: Beginning Inventory (January 1) = $143,800, Purchases (January-April) = $461,600, and Sales Revenue (January-April) = $646,400. The normal gross profit percentage is 30%. The calculations are as follows:

• Estimated Gross Profit = Sales Revenue * Gross Profit Percentage = $646,400 * 30% = $193,920.
• Estimated COGS = Sales Revenue - Estimated Gross Profit = $646,400 - $193,920 = $452,480.
• Cost of Goods Available for Sale = Beginning Inventory + Purchases = $143,800 + $461,600 = $605,400.
• Estimated Ending Inventory (April 30) = Cost of Goods Available for Sale - Estimated COGS = $605,400 - $452,480 = $152,920.

Therefore, the estimated April 30 inventory that was destroyed by fire is $152,920.