# Gross profit method The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records: Jan. 1 Merchandise inventory $350,000 Jan. 1-Dec. 31 Purchases (net) 2,950,000 Sales 4,440,000 Estimated gross profit rate 35% a. Estimate the cost of the merchandise destroyed. b. Briefly describe the situations in which the gross profit method is useful. BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 #### Solutions Chapter Section Chapter 7, Problem 7.26EX Textbook Problem ## Gross profit methodThe merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records: Jan. 1 Merchandise inventory$ 350,000 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.

Expert Solution

(a)

To determine

Gross profit method

This method is use the estimated gross profit for the period to evaluate and ascertain the ending inventory for the period. 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.

To estimate: the cost of merchandise destroyed.

### Explanation of Solution

First, the merchandise available for sale is calculated by adding up the opening balance of merchandise inventory and purchases made during the year...

Expert Solution

(b)

To determine

To describe: the situations whereby gross profit method is useful.

### Want to see the full answer?

Check out a sample textbook solution.See solution

### Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution