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 $17,000. The following information was available from the records of Hodge’s periodic inventory system: Inventory, November 1 $ 125,000 Net purchases from November 1, to the date of the fire 145,000 Net sales from November 1, to the date of the fire 225,000 Based on recent history, Hodge’s gross profit ratio on Product Tex is 40% of net sales. Required: Calculate the estimated loss on the inventory from the fire, using the gross profit method. Estimated loss from fire

Explanation / Answer

Answer:

Particulars Amount Beginning inventory $ 1,25,000.00 Purchases $ 1,45,000.00 Cost of goods available for sale $ 2,70,000.00 Net sales $ 2,25,000.00 Estimated gross profit of 40% $     90,000.00 Estimated cost of goods sold $ 1,35,000.00 Ending inventory $ 1,35,000.00 Value of usuable damaged goods $     17,000.00 Estimated loss from fire $ 1,18,000.00

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