Question: On August 31, a hurricane destroyed a retail location of Lodel Stores including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $340,000. Since June 30 until the time of the hurricane, the company made purchases of $150,000 and had sales of $560,000.
1. If sales are made at 40% above cost, what is the approximate cost of the inventory that was destroyed?
2. What is the approximate cost of the inventory that was destroyed, assuming that the gross profit is 40% of sales.
340,000 + 150,000 - (560,000* (1 - .4)) = 154,000?
3. During the prior fiscal year, Cameo Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $11.5 million of raw materials. Cameo paid the $11.5 million to acquire the raw materials when the raw materials were only worth $9.8 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase?