On November 21, 2016, 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 $11,100. The following information was available from Hodge's accounting records for Product Tex: Inventory at November 1, 2016 $97,000 Purchases from November 1, 2016, to date of flood 147,000 Net sales from November 1, 2016, to date of flood 220,000 Based on recent history, Hodge had a gross margin (profit) on Product Tex of 30% of net sales. Required:

. Prepare a schedule to calculate the estimated loss on the inventory in the flood, using the gross profit method.

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estimate of cost of goods sold
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Blank labels include:

• Accounts payable
• Add: Estimated gross margin (profit)
• Add: Salvage goods
• Cash
• Estimated cost of goods sold
• Estimated cost of inventory at date of flood
• Estimated loss on inventory in the flood
• Inventory at November 1, 2016
• Less: Estimated gross margin (profit)
• Less: Salvage goods
• Net sales from November 1, 2016, to date of flood
• Purchases from November 1, 2016, to date of flood
• Cost of goods available for sale

2. The gross profit method may not provide an accurate estimate of ending inventory when: