Gross Profit Method

On December 31, 2021 Felt Company's inventory burned, with no inventory salvaged. Sales for the year had been $1,500,000 and purchases for the year had been $980,000. The beginning inventory (Jan. 1, 2021) was $170,000; in the past Felt's gross profit has averaged 30% of selling price.

Instructions

a) Compute the estimated cost of inventory burned and provide the journal entry to record the loss assuming that Felts gross profit averaged 30% of selling price.

b) Compute the estimated cost of inventory burned and provide the journal entry to record the loss assuming that Felts gross profit averaged 42% of cost.