Liquidator Lounges' showroom was flooded and its inventory was totally destroyed.Its accounting records were damaged but the following information was salvaged.
Sales revenue (to date this period)$380 000
Beginning inventory (at retail) $90 000
Purchases (to date this period at retail)$400 000
Historical gross profit percentage 60%
Assuming the historical gross profit ratio is maintained the estimated cost of inventory lost in the flood is:

Question

Quizplus · Accepted Answer

The beginning inventory was $90,000 and the purchases were $400,000, making a total of $490,000 (at retail) of inventory available. Using the historical gross profit percentage of 60%, we can estimate that the cost of goods sold would be $196,000. Subtracting this from the total value of inventory available gives us an estimated cost of lost inventory of $294,000.

Liquidator Lounges' Showroom Was Flooded and Its Inventory Was Totally