Gross Profit Method On February 12, a hurricane destroys the entire inventory of Suncoast Corporation. An estimate of the amount of inventory lost is needed for insurance purposes. The following information is available:

Inventory on January 1 $ 15,400 Net sales from January 1 to February 12 105,300 Purchases from January 1 to February 12 84,230 Suncoast estimates its gross profit ratio as 25% of net sales. The insurance company has agreed to pay Suncoast $10,000 as a settlement for the inventory destroyed.

Required Determine the effect on the accounting equation of the adjustment to recognize the inventory lost and the insurance reimbursement.