Question

Gross Profit Method: Estimation of Flood Loss

Answer 1

Answer:

                                  Hodge Company

            Calculation of Estimated Loss on Inventory  in the

                 Flood Using Gross Margin (Profit) Method

                                   November 21, 2016

Inventory at November 1, 2016                                       $96,000

Purchases from November 1, 2016                                 $131,000

to date of flood  

Cost of goods available for sale                                     $227,000

Estimated cost of goods sold:

Net sales from November 1, 2016          $250,000

to date of flood  

Less: Estimated gross margin                 $75,000          $175,000

(250,000 * 30%)

Estimated cost of inventory at date of flood                   $52,000

Less: Salvage goods                                                         $9,200

Estimated loss on inventory in the flood                       $42,800