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5) Estimating inventory using gross profit method: Estimating Inventory Using...

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Accounting

5) Estimating inventory using gross profit method:
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Estimating Inventory Using Gross Profit Method Woods warehouse burned down on April 1 of Year 4 . The following information (up to the date of the fire) was taken from the Year 4 records of the company: inventory, fanuary 1,$120,000; gross sales, $640,000; purchases, $360,000; sales returns (restored to inventory), $20,000; purchase returns and allowances, $8,000; and freight-in, $32,000. The cost of goods sold and gross profit for the past three years follow. Required a. Estimate the cost of the inventory destroyed in the fire, using the average gross profit percentage for the past three years. - Note: Assume no inventory was salvagable. - Note: Do not use negative signs with any of your answers Average gross profit percentage for the past three years: x b. Our estimate in part a would be questionable in all of the following cases except for The gross profe percentage for Year 5 is expected to decrease

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