Question

A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records: $197,400 101 600 Beginning inventory Purchases to date of storm Sales to date of storm 598,900 The value of undamaged inventory counted was $123,336. Historically, Prentiss's gross margin percentage has been approximately 24 percent of sales. Required Estimate the following: a. Gross margin in dollars. Gross margin b. Cost of goods sold in dollars. Cost of goods sold c. Ending inventory. Estimated ending inventory d. Amount of lost inventory. Inventory lost

Answer 1

A.) Gross Margin in dollars

Gross Margin = $ 143,736

Explanation :

Gross Margin = Sales ×  Gross Margin %

Gross Margin = $ 598,900 × 24 %

= $ 143,736

B .) Cost of Goods Sold in dollars

Cost of Goods Sold = $ 455,164

Explanation ;

Cost of Goods Sold = Sales × Cost of Goods Sold %

   = $ 598,900 × 76 % ( 100% - 24%)

   = $ 455,164

C.) Ending Inventory

   Estimated Ending Inventory = $ 143,836

Explanation;

Computation of Ending Inventory

Particulars	Amount
Beginning Inventory	$ 197,400
Add: Purchases	$ 401,600
Goods Avilable for Sale	$ 599,000
Less : Cost of Goods Sold	($ 455,164)
Ending Inventory	$ 143,836

D.) Amount of lost Inventory

Inventory lost = $ 20,500

Explanation;

Pariculars	Amount
Estimated Ending Inventory	$ 143,836
Less : Undamaged Inventory	( $ 123,336)
Inventory Lost	$ 20,500