November 21, 2018, a fire at Hodge Company\'s warehouse caused severe damage to

Question

November 21, 2018, a fire at Hodge Company's warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $22.000. The following information was available from the records of Hodge's periodic inventory system: Inventory, November 1 Net purchases from November 1, to the date of the fire Net sales from Novenber 1, to the date of the fire $150,000 150,000 230,000 Based on recent history. Hodge's gross profit ratio on Product Tex is 35% of net sales. Required Calculate the estimated loss on the inventory from the fire, using the gross profit method

Explanation / Answer

SOLUTION

Calculation of estimated loss on the inventory from the fire-

Particulars Amount ($) Amount ($) Beginning inventory 150,000 Add: Net purchases 150,000 Cost of goods available for sale (A) 300,000 Less : Cost of goods sold   Net sale 230,000 Less: Estimated gross profit of 35% (80,500) Estimated cost of good sold (B) 149,500 Estimated ecding inventory (A-B) 150,500 Less : Value of usable damaged goods (22,000) Estimated loss from Fire 128,500

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