The merchandise inventory was destroyed by fire on December 13. The following da

Question

The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:

Exact wording description

Estimated cost of merchandise sold

B. The gross profit method is useful. Check all that apply.

__for estimating inventories for monthly or quarterly financial statements.

__for deciding whether the inventory has gone out of style and must be marked down.

to help management decide between FIFO, LIFO, and weighted average inventory cost flow methods.

__for estimating the cost of merchandise destroyed by fire or other disasters.

__for determining the sales price of merchandise.

Jan. 1 Merchandise Inventory $ 340,000 Jan. 1 to Dec. 13 Purchases (net) 2,930,000 Sales 4,450,000 Estimated gross profit rate 30%

Explanation / Answer

1)

2)

Answer:

a)

for estimating inventories for monthly or quarterly financial statements

c)

for estimating the cost of merchandise destroyed by fire or other disasters

The gross profit method is a technique used to estimate the amount of ending inventory. The technique could be used for monthly financial statements when a physical inventory is not feasible. (However, it is no substitute for an annual physical inventory.) It is also used to estimate the amount of missing inventory caused by theft, fire or other disaster.

Merchandise inventory, January 1 $   3,40,000 Purchases (net), January 1-December 13 $ 29,30,000 Merchandise available for sale and $ 32,70,000 $ 46,71,429 Ratio of cost to retail price 70% 100% Less: sales at retail $ 44,50,000 Estimated merchandise inventory, December 13 $   2,21,429 Estimated cost of merchandise sold $   1,55,000

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