Problem
On January 1, Amos Store had inventory valued at $62,000. January purchases were $39,000 and January sales were $110,000. On February 1, a fire destroyed most of the inventory. The rate of gross profit was 25% of cost. Merchandise with a selling price of $5,000 remained undamaged after the fire.
Task
1. Calculate the amount of the fire loss. Show appropriate titles for all amounts in your presentation.
2. Critical Thinking: The CEO asks you to use these estimates in preparing the yearend financial statement. Is this appropriate? Why or why not? Prepare a detailed response for the CEO.