Gross Profit Method of Estimating Inventory Losses On August 1, an office supply store was destroyed by an explosion in its basement. A small amount of inventory valued at $4,500 was saved. An estimate of the amount of inventory lost is needed for insurance purposes. The following information is available:

The normal gross profit ratio is 40%. The insurance company will pay the store $65,000.
Required 1. Using the gross profit method, estimate the amount of inventory lost in the explosion.
2. Prepare the appropriate journal entry to recognize the inventory loss and the insurance reimbursement.

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Inventory, January 1 Purchases, January-July Sales, January-July $ 3,200 164,000 113,500