113k views
2 votes
A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2021. Accounting records on that date indicated the following: Merchandise inventory, January 1, 2021 $ 1,970,000 Purchases to date 5,870,000 Freight-in 470,000 Sales to date 8,900,000 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.

User Demure
by
8.3k points

1 Answer

3 votes

Answer:

$1,190,000

Step-by-step explanation:

The computation of cost of the inventory is given below:-

For computing the cost of inventory first we need to find out the cost of goods sold which is shown below:-

Cost of goods sold = Sales - Estimated gross profit

= $8,900,000 - ($8,900,000 × 20%)

= $7,120,000

Now, the Cost of the inventory = Beginning inventory + Purchase + Freight - Cost of goods sold

= $1,970,000 + $5,870,000 + $470,000 - $7,120,000

= $8,310,000 - $7,120,000

= $1,190,000

So, for computing the cost of the inventory we have applied the above formula.

User Chris Cousins
by
7.4k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.