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The inventory was destroyed by fire on December 31. The following data were obtained from the accounting records: Jan. 1 Inventory $ 360,000 Jan. 1 to Dec. 31 Purchases (net) 2,870,000 Sales 4,470,000 Estimated gross profit rate 30% A. Estimate the cost of the inventory destroyed. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. B. In which situations would the gross profit method be useful

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Answer:

A. Estimate the cost of the inventory destroyed is $101,000

B. Gross profit method would be useful in estimating the cost of merchandise destroyed by the fire.

Explanation:

Particulars                                                                Debit ($)                Credit ($)

Beginning merchandise inventory                                                     360,000

Add: Net purchase                                                                              2,870,000

Merchandise available for sale                                                          3,230,000

Less: Net sales                                                      4,470,000

Estimated gross profit (30%)                                (1,341,000)

Estimated cost of merchandise sold                                                  3,129,000

Estimate the cost of the inventory destroyed                                    101,000

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