The Jamison Company\'s inventory was destroyed on July 4, 2016, when its warehou
ID: 2570145 • Letter: T
Question
The Jamison Company's inventory was destroyed on July 4, 2016, when its warehouse caught on fire early in the morning. Inventory was totally destroyed. The accounting records, which were located in a fireproof vault, contained the following information:
Sales (1/1/16 through 7/3/16)
$240,000
Purchases (1/1/16 through 7/3/16)
180,000
Inventory (1/1/16)
45,000
Gross profit ratio
25% of cost
Using the gross profit method, what is the estimated cost of the inventory that was destroyed by the fire?
a.
$15,000
b.
$23,250
c.
$33,000
d.
$45,000
Sales (1/1/16 through 7/3/16)
$240,000
Purchases (1/1/16 through 7/3/16)
180,000
Inventory (1/1/16)
45,000
Gross profit ratio
25% of cost
Explanation / Answer
C$33,000.
First let us find out the cost of goods sold:
given that sales =$240,000.
gross profit is 25% of cost.
=>sale price = cost +25% of cost
=> sales amount = 125% of cost.
=>$240,000 is 125% of its cost of goods sold.
=>cost of goods sold will be =$240,000 * 100/125
=>cost of goods sold = $192,000.
now,
cost of closing inventory (which was destroyed) = opening stock + purchases - cost of goods sold
=>$45,000 +180,000 - 192,000
=>$33,000.
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