Bao Company lost all of its inventory in a fire on December 26, 2019. The accounting records showed the following gross profit data for November and December.
| November | December (to 12/26) | |
| Net Sales | $600,000 | $700,000 |
| Beginning inventory | 32,000 | 36,000 |
| Purchases | 389,000 | 420,000 |
| Purchase returns and allowances | 13,300 | 14,900 |
| Purchase discounts | 8,500 | 9,500 |
| Freight-in | 8,800 | 9,900 |
| Ending inventory | 36,000 | ? |
Bao is fully insured for fire losses but must prepare a report for the insurance company.
Instructions
- Compute the gross profit rate for November.
- Using the gross profit rate for November, determine the estimated cost of inventory lost in the fire
Solution
a.
Bao Company
Income Statement
For the month ended November 30, 2019
Income Statement
For the month ended November 30, 2019
b.
Bao Company
Gross Profit Method
Ending Inventory at December 26, 2019
Gross Profit Method
Ending Inventory at December 26, 2019
