Gross profit method
Response to the following problem:
A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2016. Accounting records on that date indicated the following:
Merchandise inventory, January 1, 2016 $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.