Fosbre Corporation's April 30 inventory was destroyed by fire. January 1 inventory was $172,600, and purchases for January through April totaled $475,000. Sales revenue for the same period were $714,100. Fosbre's normal gross profit percentage is 30% on sales.
Using the gross profit method, estimate Fosbre's April 30 inventory that was destroyed by fire.
Valuation of inventory lost by fire:
Inventory at the ending period refers to the goods that are held and not sold. Inventory can be of raw materials, work in progress and of finished goods. Its valuated at the lower of cost or net realizable value. Inventory lost by fire has to be found, because its a loss of abnormal nature and has a value that impacts the profit of the company.
Answer and Explanation:
Fosbre's April 30 inventory that was destroyed by fire can be computed as follows:
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from Financial Accounting: Help and ReviewChapter 1 / Lesson 6