Question

On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available:

Sales, January 1 through April 15 $600,000
Inventory, January 1 100,000
Purchases, January 1 through April 15 500,000
Markup on cost 25%

The amount of the inventory loss is estimated to be:

a. $120,000.
b. $60,000.
c. $150,000.
d. $100,000.

Answer 1

Answer: a. $120,000.

Step-by-step explanation:

The inventory lost can be calculated by;

= Opening inventory + Purchases - Cost of Goods sold

Cost of goods sold = Sales - Markup on price

= 600,000 - (600,000 * 25/125)

= 600,000 - 120,000

= $480,000

Inventory lost = 100,000 + 500,000 - 480,000

= $120,000