Gross Profit Method
On November 21, 2013, a fire at Hodge Company's warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $12,000. The following information was available from Hodge's accounting records for Product Tex:
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Inventory at November 1, 2013
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$104,000
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Purchases from November 1, 2013, to date of fire
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143,000
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Net sales from November 1, 2013, to date of fire
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236,000
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Based on recent history, Hodge had a gross margin (profit) on Product Tex of 30% of net sales.
- Prepare a schedule to calculate the estima ted loss on the inventory in the fire, using the gross profit method.