Gross Profit Method: Estimation of Theft Loss You are requested by a client on September 28 to prepare an insurance claim for a theft loss that occurred on that day. You immediately take an inventory and obtain the following data:
The inventory on September 28 indicates that an inventory of $15,000 remains after the theft. During the past year, net sales were made at 50% above the cost of goods sold.
Required:
1.
Calculate the cost of inventory lost during the theft.
Gross Profit Method: Under this method, the beginning inventory is added to the net purchases during the period which results in the goods available for sale. Then, the estimated cost of goods sold is deducted from the goods available for sale to estimate the ending inventory.
Calculate the cost of inventory lost during the theft.
Inventory Lost During Theft | ||
 Gross Profit method | ||
Details | Amount ($) | Amount ($) |
Beginning Inventory | 38,000 | Â |
Add: Purchases | 19,000 | Â |
Cost of Goods Available for Sale | Â | 57,000 |
 | ||
Less: Estimated Cost of goods sold | Â | (34,017) |
Ending Inventory Before Theft | Â | 22,983 |
Ending Inventory After Theft | Â | (15,000) |
Inventory Lost | Â | $7,983 |
Table (1)
Working note 1:
Calculate the amount of cost of goods sold.
Step 1: Calculate the gross profit percentage of sales...
2.
State the concerns about the estimation of inventory under the gross profit method.
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