Suppose Base Company began May with inventory of $2,000 and purchased $8,000 worth of inventory during the first half of May. Sales for the first half of May amounted to $12,000. Then, a fire destroyed the remaining inventory. Base Company has had a gross profit ratio of approximately 30% for the first four months of the year. Approximately how much inventory did Base Company lose in the fire?
Compute the amount of inventory that Company B loses in the fire accident.
Explanation of Solution
Given information:
Inventory at Beginning of Month May is $2,000, Inventory purchased during the first half of the month is $8,000, and sales during the first half of the month are $12,000.
Gross profit percentage is 30% and the remaining inventories are destroyed in the fire which means the ending inventory destroyed in fire.
Therefore, the inventory destroyed in fire is $1,600.
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Chapter 5B Solutions
Financial Accounting
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