On March 15,Stark Company's inventory was destroyed by a tornado.The following was the only information salvaged: (1)Inventory,January 1: $31,000
(2)Purchases to Mar 15: $14,000
(3)Sales to Mar 15: $65,000
(4)Sales returns to Mar 15: $7,000
Stark's average gross profit ratio is 35%.What is the estimated value of the destroyed inventory?

Question

Quizplus · Accepted Answer

The estimated value of the destroyed inventory is $7,300. This is calculated as follows:Sales to Mar 15: $65,000Sales returns to Mar 15: $7,000Net sales: $58,000Gross profit ratio: 35%Gross profit: $58,000 x 35% = $20,300Cost of goods sold: $58,000 - $20,300 = $37,700Inventory, January 1: $31,000Purchases to Mar 15: $14,000Total goods available for sale: $31,000 + $14,000 = $45,000Estimated value of destroyed inventory: $45,000 - $37,700 = $7,300

On March 15,Stark Company's Inventory Was Destroyed by a Tornado