On November 21, 2016, a fire at Hodge Company’s warehouse caused severe damage t

Question

On November 21, 2016, a fire at Hodge Company’s warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $32,000. The following information was available from the records of Hodge’s periodic inventory system:

Calculate the estimated loss on the inventory from the fire, using the gross profit method.

  
  Inventory, November 1 $ 200,000   Net purchases from November 1, to the date of the fire 160,000   Net sales from November 1, to the date of the fire 240,000

Explanation / Answer

Calculation of the loss from fire Opening Inventory 200000 Purchases till fire 160000 Less: Cost of Goods sold -156000 Loss due to fire 204000 Sales 240000 Net Profit 240000*35% 84000 Cost of sales 156000 240000-84000 Loss due to fire is $ 204000

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