A substantial portion of inventory owned by Prentiss Sporting Goods was recently

Question

A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records:

The value of undamaged inventory counted was $89,875. Historically Prentiss’ gross margin percentage has been approximately 19 percent of sales.

A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records:

Explanation / Answer

a) Gross margin in dollars = 602500*19% = 114475

b) Cost of goods sold in dollars = 602500-114475 = 488025

c) Ending inventory = Beginning inventory+purchase-Cost of goods sold

                                = 195900+404600-488025

Ending inventory = 112475

d) Amount of lost inventory = 112475-89875 = 22600

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