A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm.

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     $     197,700    
  Purchases to date of storm           403,700    
  Sales to date of storm           600,500    



   

The value of undamaged inventory counted was $84,190. Historically Prentiss’ gross margin percentage has been approximately 18 percent of sales.

   
Required
Estimate the following:

 
a.     Gross margin in dollars.

Explanation:

a.

Gross Margin: Sales × Gross Margin %

$600,500 × 18% = $108,090

b.

Cost of Goods Sold: Sales × Cost of Goods Sold %

$600,500 × 82% = $492,410

c.

Computation of ending inventory:

Beginning inventory	$	197,700
Plus: Purchases		403,700
Goods available for sale		601,400
Less: Cost of goods sold (Est.)	(	492,410	)
Ending inventory (Est.)	$	108,990

d.

Lost Inventory:

Estimated ending inventory	$	108,990
Less: Undamaged inventory		84,190
Inventory Lost	$	24,800

Thank you!