Question Details

Calculate the estimated cost of the inventory 



Ex. 1—Gross profit method.
On January 1, a store had inventory of $48,000. January purchases were $46,000 and January sales were $90,000. On February 1 a fire destroyed most of the inventory. The rate of gross profit was 25% of cost.  Merchandise with a selling price of $5,000 remained undamaged after the fire. Compute the amount of the fire loss, assuming the store had no insurance coverage. Label all figures.

Ex. 2—Gross profit method.
Utley Co. prepares monthly income statements. Inventory is counted only at year end; thus, month-end inventories must be estimated. All sales are made on account. The rate of mark-up on cost is 20%. The following information relates to the month of May.

Accounts receivable, May 1	$21,000
Accounts receivable, May 31	27,000
Collections of accounts during May	90,000
Inventory, May 1	45,000
Purchases during May	58,000

Instructions
Calculate the estimated cost of the inventory on May 31.



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