Franklin Co. has experienced gross profit ratios for 2019, 2018, and 2017 of 33%, 30%, and 31%,

Question:

Franklin Co. has experienced gross profit ratios for 2019, 2018, and 2017 of 33%, 30%, and 31%, respectively. On April 3, 2020, the firm’s plant and all its inventory were destroyed by a tornado. Accounting records for 2020, which were available because they were stored in a protected vault, showed the following:

Sales from January 1 through April 2 . . . . . . . . . . . . . . . . . . . . . . . . $71,340
January 1 inventory amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,795
Purchases of inventory from
January 1 through April 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... . 59,326


Required:
Calculate the amount of the insurance claim to be filed for the inventory destroyed in the tornado. (Hint: Use the cost of goods sold model and a gross profit ratio that will result in the largest claim.)

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Accounting What the Numbers Mean

ISBN: 978-1260565492

12th edition

Authors: David Marshall, Wayne McManus, Daniel Viele

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