Question

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	$	2,070,000
Purchases to date		5,970,000
Freight-in		570,000
Sales to date		9,900,000

The gross profit ratio has averaged 30% of sales for the past four years.

Required:
Use the gross profit method to estimate the cost of the inventory destroyed in the fire.

Answer 1

data given merchandise inventory jan 31 2021 2070000 purchases to date 5970000 freight in 570000 sales to date 9900000 explanation cost of goods available for sale merchandise inventory jan 31 2021 2070000 purchases to date freight in 5970000 570000 cost of goods available for sale 8610000 less cost of goods sold (100%-30%)*sales 6930000 cost of inventory destroyed in the fire 1680000