Question 4

Suppose a Freaking Bigbox bookstore lost inventory in a fire. To file an insurance claim, Freaking Bigbox must estimate its inventory by the gross profit method. For the past two years, Freaking Bigbox's gross profit has averaged 40% of net sales. Freaking Bigbox's inventory records reveal the following data:

Inventory, July 1, 2022 ....................... $360,000

Transactions during July

Purchases........................................... 628,000

Purchase discounts.................................. 4,500

Purchase returns..................................... 9,000

Sales revenue .................................. 1,000,000

Sales returns...................................... 170,000

Required

1, Estimate the cost of the lost inventory using the gross profit method.

2. Prepare the July 2022 income statement through gross profit. Show the detailed computation of cost of goods sold in a separate schedule.