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	$	203,200
Purchases to date of storm		404,800
Sales to date of storm		599,200

The value of undamaged inventory counted was $128,808. Historically, Prentiss’s gross margin percentage has been approximately 24 percent of sales.

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)

Gross Margin in dollar                   =   Sales x Gross margin Percentage                   =    $ 599,200 x 24%                   =    $ 143,808

Gross Margin in dollar =    $ 143,808

(b)

Cost of goods sold in dollars                  = Sales (-) Gross Margin                  =   $ 599,200 (-) $ 143,808                  =      $ 455,392

Cost of goods sold in dollars   =      $ 455,392

( c)

Estimated Ending Inventory        = Beginning Inventory + Purchases (-) Cost of goods sold         = $ 203,200 + $ 404,800 (-) $ 455,392         =   $ 152,608

Estimated Ending Inventory =   $ 152,608

d)

Amount of lost inventory            =   Ending Inventory (-) Damaged Inventory            = $ 152,608 (-) $ 128,808            =   $ 23,800

Amount of lost inventory =   $ 23,800