The accountant for a company whose inventory was destroyed by fire determined from undamaged records that the cost of goods available for sale was $100,000 and the net sales were $80,000 up to the date of the fire. The accountant also determined that the company's normal gross profit rate is 40 percent of net sales. From this data, the accountant estimated the cost of the inventory destroyed by the fire to be

Question

Quizplus · Accepted Answer

The estimated cost of the inventory destroyed by the fire can be found by multiplying the net sales up to the date of the fire by the normal gross profit rate: 
$80,000 x 0.4 = $32,000
This represents the portion of the sales that would have been the company's gross profit on the inventory destroyed by the fire. The cost of goods sold can be calculated by subtracting the gross profit from the net sales:
$80,000 - $32,000 = $48,000
Since the cost of goods available for sale was $100,000, the cost of the inventory destroyed by the fire can be found by subtracting the cost of goods sold from the cost of goods available for sale:
$100,000 - $48,000 = $52,000
Therefore, the answer is B.

The Accountant for a Company Whose Inventory Was Destroyed by Fire