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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

GROSS PROFIT METHOD A fire completely destroyed all the inventory of Glisan Lumber Yard on August 5, 20--. Fortunately, the accounting records were not destroyed in the fire. The following information is provided by Glisan Lumber Yard for the time period January 1 through August 5:

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REQUIRED

Estimate the amount of merchandise inventory destroyed in the fire on August 5 using the gross profit method.

To determine

Estimate the amount of merchandise inventory destroyed in the fire on August 5 using the gross profit method.

Explanation

Gross profit method:

  • Gross profit method is used to determine the amount of estimated inventory lost or destroyed by theft, fire, or other hazards.
  • The gross profit for the period is calculated from the preceding year, which is adjusted for any current period changes in the sales and cost price of the inventory.
  • It estimates the value of inventory and cost of goods sold by avoiding the expenses occurred on physical count of inventory.

Estimate the amount of merchandise inventory destroyed in the fire on August 5 using the gross profit method:

Estimated Inventory Destroyed- Gross profit Method
DetailsAmount ($)Amount ($)
Beginning inventory, January 1, 20--100,000
Add: Net cost of purchases, January 1 - August 5, 20--420,000
Cost of goods available for sale520,000
Less: Estimated cost of goods sold...

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