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 $14,000. The following information was available from the records of Hodge’s periodic inventory system: Inventory, November 1 $ 110,000 Net purchases from November 1, to the date of the fire 142,000 Net sales from November 1, to the date of the fire 222,000 Based on recent history, Hodge’s gross profit ratio on Product Tex is 30% of net sales.

Explanation / Answer

Beginning inventory (from records) $ 110,000
Plus: Net purchases (from records) 142,000
Cost of goods available for sale 252,000
Less: Cost of goods sold:
Net sales $ 222,000
Less: Estimated gross profit of 30% (66600)
Estimated cost of goods sold ($155400)
Estimated ending inventory 96600
Less: Value of usable damaged goods (14,000)
Estimated loss from fire $82600

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