Wormold Industries suffered a fire in its warehouse on March 4, 2021. The warehouse was full of finished goods, and after reviewing the damage, management determined that inventory, with a retail selling price of $90,000, was not damaged by the fire.

For the period from January 1, 2021, to March 4, 2021, accounting records showed the following:

The inventory balance on January 1, 2021, was $275,000, and the company has historically earned a gross profit percentage of 35%.
Required: Use the gross profit method to determine the cost of inventory damaged by the fire.

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Purchases Purchase returns $650,000 16,000 Sales revenue 955,000