Gross Profit Method: Estimation of Flood Loss On November 21, 2019, a flood at Hodge Company's warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $11,500. The following information was available from Hodge's accounting records for Product Tex: Inventory at November 1, 2019 $114,000 Purchases from November 1, 2019, to date of flood 149,000. Net sales from November 1, 2019, to date of flood 246,000 Based on recent history, Hodge had a gross margin (profit) on Product Tex of 35% of net sales. Required: 1. Prepare a schedule to calculate the estimated loss on the inventory in the flood, using the gross profit method. HODGE COMPANY Calculation of Estimated Loss on Inventory in the Flood Using Gross Margin (Profit) Method Inventory at November 1, 2019 November 21, 2019 Purchases from November 1, 2019, to date of flood Cost of goods available for sale 114,000 149,000 263,000 Estimated cost of goods sold Net sales from November 1, 2019, to date of flood 246,000 Previous Based on recent history, Hodge had a gross margin (profit) on Product Tex of 35% of net sales. Required: 1. Prepare a schedule to calculate the estimated loss on the inventory in the flood, using the gross profit method. HODGE COMPANY Calculation of Estimated Loss on Inventory in the Flood Using Gross Margin (Profit) Method November 21, 2019 Inventory at November 1, 2019 Purchases from November 1, 2019, to date of flood Cost of goods available for sale Estimated cost of goods sold 114,000 149,000 263,000 Net sales from November 1, 2019, to date of flood 246,000 2. The gross profit method may not provide an accurate estimate of ending inventory when: