Estimate the amount of inventory destroyed by the fire

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Reference no: EM13491906

On November 29th 2012, a fire broke out in the warehouse of Leansot Company and destroyed most of the inventory at hand as well as the inventory records. The only inventory salvaged and in good condition is worth $36,000. Luckily, some backup data was found and the company maintains fire insurance. From the data recovered, the following information was derived.

 

 

January 1 beginning inventory

$275,000

January 1 beginning cash balance

$     300,000

Cost of goods purchased during the period

$   3,600,000

Cash Sales during the period

$   1,800,000

Credit Sales during the period

$   4,400,000

Sales returns & allowances

$     300,000

Sales discounts

$     100,000

Purchase returns & allowances

$     125,000

Purchase discounts

$      50,000

Inventory on consignment on 11/29/2012

$      90,000

Inventory on transit from suppliers as at 11/30/2012

$      50,000

Inventory on transit to customers on 11/29/2012 FOB Shipping point, invoice date 11/29/2012

$     60,000

The company uses the perpetual inventory system and all purchase returns, allowances, and discounts are debited or credited to the inventory account. Historical data indicates that the company's gross profit rate averages 30%.

Required: Use the gross profit method to estimate the amount of inventory destroyed by the fire, and thus, the amount to be claimed from the insurance company.

 

Reference no: EM13491906

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