Question

A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2013. Accounting records on that date indicated the following:Merchandise inventory, January 1, 2013 $ 1,900,000 Purchases to date 5,800,000 Freight-in 400,000 Sales to date 8,200,000 The gross profit ratio has averaged 20% of sales for the past four years.Required:Use the gross profit method to estimate the cost of the inventory destroyed in the fire.Estimated loss from from fire

Answer 1

Estimated loss from from fire is $ 1,540,000

Step-by-step explanation:

Hint : Prepare Income Statement based on the gross profit ratio

Sales 8,200,000

Less Cost of Merchandise Sold:

Opening Merchandise 1,900,000

Add Purchases 5,800,000

Add Freight-in 400,000 6,200,000

Available for Sale 8,100,000

Less Merchandise destroyed (1,540,000) (6,560,000)

Gross Profit at 20% of Sales 1,640,000