Question

A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records:
Beginning inventory $ 204,300
Purchases to date of storm 398,800
Sales to date of storm 600,900

The value of undamaged inventory counted was $134,725. Historically, Prentiss’s gross margin percentage has been approximately 25 percent of sales.

Required
Estimate the following:

a. Gross margin in dollars.




b. Cost of goods sold in dollars.




c. Ending inventory.




d. Amount of lost inventory.

Answer 1

Answer:

a) $150,225

b) $450,675

c) $152,425

d) $17,700

Step-by-step explanation:

Given:

Beginning inventory = $204,300

Purchases to date of storm = $398,800

Sales to date of storm = $600,900

The value of undamaged inventory counted = $134,725

Prentiss’s gross margin percentage = 25% of sales

a) Now,

Gross margin = Sales × Gross margin percentage

= $600,900 × 25%

= $150,225

GROSS MARGIN ( DOLLARS)= 113506

b) Cost of goods sold = Sales - Gross margin

= $600,900 - $150,225

= $450,675

c) Ending inventory

= Beginning inventory + purchase - Cost of goods sold

= $204,300  + $398,800  - $450,675

= $152,425

d) Amount of lost inventory

= Ending inventory - Undamaged inventory

= $152,425 - $134,725

= $17,700