Question
Asked Dec 14, 2019
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The merchandise inventory was destroyed by fire on December 13. The following data
were obtained from the accounting records:
Merchandise inventory
$ 350,000
Jan. 1
Jan. 1-Dec. 31
Purchases (net)
2,950,000
Sales
4,440,000
Estimated gross profit rate
35%
a. Estimate the cost of the merchandise destroyed.
b. Briefly describe the situations in which the gross profit method is useful.
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The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records: Merchandise inventory $ 350,000 Jan. 1 Jan. 1-Dec. 31 Purchases (net) 2,950,000 Sales 4,440,000 Estimated gross profit rate 35% a. Estimate the cost of the merchandise destroyed. b. Briefly describe the situations in which the gross profit method is useful.

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Expert Answer

Step 1

 

Step 2

a. 

The merchandise inventory at the end of the year is calculated as follows:

 

...
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Amount Amount ($) ($) Merchandise inventory, January 1 350,000 Purchases during the year (net), [Jan 1– Dec31] 2,950,000 Merchandise available for sale 3,300,000 Less: Sales for the year [Jan 1– Dec31] | 4,440,000 (-) Estimated gross profit (1) 1,554,000 Estimated cost of merchandise sold 2,886,000 Estimated merchandise inventory, December 31 414,000

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Business

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Inventory Valuation

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