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Chapter 9: Question 9BE (page 474)

Fosbre Corporation’s April 30 inventory was destroyed by fire. January 1 inventory was \(150,000, and purchases for January through April totaled \)500,000. Sales revenue for the same period was $700,000. Fosbre’s normal gross profit percentage is 35% on sales. Using the gross profit method, estimate Fosbre’s April 30 inventory that was destroyed by fire.

Short Answer

Expert verified

The inventory destroyed by fire as of April 30 equals $195,000.

Step by step solution

01

The cost of goods sold is calculated as follows:

Costofgoodssold=Salesrevenue-(Salesrevenue×Grossprofitpercentage)=$700,000-($700,000×35%)=$455,000

02

Ending inventory is calculated as follows:

EndingInventory=BeginningInventory+InventoryPurchased-Costfgoodssold=$150,000+$500,000-$455,000=$195,000

Thus, inventory destroyed by fire equals $195,000.

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