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The merchandise inventory was destroyed by fire on August 19. The following data were obtained from the accounting records:
Jan. 1
Merchandise inventory
$ 360,000
Jan. 1-Aug. 19
Purchases (net)
3,200,000
Sales (net)
5,200,000
Estimated gross profit rate
36%
a. Estimate the cost of the merchandise destroyed.
b. Briefly describe the situations in which the gross profit method is useful.
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