Problem 5-5: Gross Profit Method of Estimating Inventory Losses On August 1, an office supply store was destroyed by an explosion in its basement. A small amount of inventory valued at $4,500 was saved. An estimate of the amount of inventory lost is needed for insurance purposes. The following information is available: Inventory on January1 Purchases, January-July Sales, Jauary-July S 3,200 164,000 113,500 The normal gross profit ratio is 40%. The insurance company will pay the store $65,000. Required 1. Using the gross profit method, estimate the amount of inventory lost in the explosion. 2. Prepare the journal entry to record the inventory loss and the nsurance reimbursement