A fire destroyed the Churchill Company's warehouse on March 15, 2016. Only goods with a normal selling price of
$12,500 and a net realizable value of $5,000 were saved. The following information is available from the company's records: For the period from 2011 through 2015, Churchill had a gross profit of $2,100,000 on net sales of $6,000,000.
Required:
a. Estimate Churchill's inventory loss from the fire using the gross profit method.
b. What assumptions allow the use of the gross profit method in these circumstances?

Question

A fire destroyed the Churchill Company's warehouse on March 15, 2016. Only goods with a normal selling price of
$12,500 and a net realizable value of $5,000 were saved. The following information is available from the company's records:  For the period from 2011 through 2015, Churchill had a gross profit of $2,100,000 on net sales of $6,000,000.
Required: 
a. Estimate Churchill's inventory loss from the fire using the gross profit method.
b. What assumptions allow the use of the gross profit method in these circumstances?

Quizplus · Accepted Answer

The Answer of A fire destroyed the Churchill Company's warehouse on March 15, 2016. Only goods with a normal selling price of
$12,500 and a net realizable value of $5,000 were saved. The following information is available from the company's records:  For the period from 2011 through 2015, Churchill had a gross profit of $2,100,000 on net sales of $6,000,000.
Required: 
a. Estimate Churchill's inventory loss from the fire using the gross profit method.
b. What assumptions allow the use of the gross profit method in these circumstances?

A Fire Destroyed the Churchill Company's Warehouse on March 15