Question

On January 1, a store had inventory of $50,000. January purchases were $46,500 and January sales were $80,000. On Februa...

On January 1, a store had inventory of $50,000. January purchases were $46,500 and January sales were $80,000. On February 1 a fire destroyed most of the inventory. The rate of gross profit was 25% of cost. Merchandise with a selling price of $5,500 remained undamaged after the fire. Compute the amount of the fire loss, assuming the store had no insurance coverage.

Fire loss $____________

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Answer #1

Cost of goods available for sale = $50,000 + $46,500 = $96,500

Cost of goods sold = $80,000 X 100/125 = $64,000

January ending inventory = $96,500 - $64,000 = $32,500

Cost of goods undamaged = $5,500 X 100/125 = $4,400

Cost of goods lost by fire = $32,500 - $4,400 = $28,100

Fire loss = $28,100

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