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A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2013. Accounting records on that date indicated the following:Merchandise inventory, January 1, 2013 $ 1,900,000 Purchases to date 5,800,000 Freight-in 400,000 Sales to date 8,200,000 The gross profit ratio has averaged 20% of sales for the past four years.Required:Use the gross profit method to estimate the cost of the inventory destroyed in the fire.Estimated loss from from fire

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Answer:

Estimated loss from from fire is $ 1,540,000

Explanation:

Hint : Prepare Income Statement based on the gross profit ratio

Sales                                                                                8,200,000

Less Cost of Merchandise Sold:

Opening Merchandise                               1,900,000

Add Purchases                    5,800,000

Add Freight-in                        400,000      6,200,000

Available for Sale                                        8,100,000

Less Merchandise destroyed                    (1,540,000)  (6,560,000)

Gross Profit at 20% of Sales                                             1,640,000

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