21 Feb Gross Profit Method of Estimating Inventory Losses
Gross Profit Method of Estimating Inventory LossesOn August 1, an office supply store was destroyed by an explosion in its basement. A smallamount of inventory valued at $4,500 was saved. An estimate of the amount of inventory lost isneeded for insurance purposes. The following information is available:The normal gross profit ratio is 40%. The insurance company will pay the store $65,000.Required1. Using the gross profit method, estimate the amount of inventory lost in the explosion.2. Prepare the appropriate journal entry to recognize the inventory loss and the insurance reimbursement.
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