Barclay Companys tea distribution center in Boston suffered severe fire damage on April 28, 2014. You have been hired by Barclay to estimate the amount of fire loss for insurance purposes. Barclay uses the perpetual inventory system and last conducted a physical count on January 1, 2014. In reviewing Barclays general ledger, you note the following:

Beginning Inventory	$500,000
Purchases	$2,000,000
Purchase Returns and Allowances	$100,000
Purchase Discounts	$40,000
Freight-in	$60,000
Sales	$3,100,000
Sales Returns	$45,000

You also note that included in Barclays purchases are $42,000 of goods-in-transit from a supplier on April 28^th that were shipped fob shipping point. The goods have not yet arrived.

a. Compute the estimated loss using an historic gross profit ratio of 30% of net sales.

b. Compute the estimated loss using the current year markup (over cost of goods sold) of 36%.