On September 1 of the current year, Scots Company experienced a flood that destr

Question

On September 1 of the current year, Scots Company experienced a flood that destroyed the company's entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $215,450. Inventory purchased during August was $192,530. Sales for the month of August were $542,500. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.

Multiple Choice

A $87,480

B $134,520

C $109,980

D $82,480

E $81,480

Explanation / Answer

To beginning inventory 215450 By sales 542500 To purchases 192530 Byestimated inventorydestroyed(balance) $82480 To grossprofit(542500*0.4) 217000 Total $624980 Total $624980

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