ross Profit Method: Estimation of Flood Loss

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 $11,000. The following information was available from Hodge's accounting records for Product Tex:

Inventory at November 1, 2016		$98,000
Purchases from November 1, 2016, to date of flood		143,000
Net sales from November 1, 2016, to date of flood		217,000

Based on recent history, Hodge had a gross margin (profit) on Product Tex of 25% of net sales.

Required:

Question Content Area

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

Accounts PayableAdd: Estimated gross margin (profit)Add: Salvage goodsCashEstimated cost of goods soldEstimated cost of inventory at date of floodEstimated loss on inventory in the floodInventory at November 1, 2016Less: Estimated gross margin (profit)Less: Salvage goodsNet sales from November 1, 2016, to date of floodPurchases from November 1, 2016, to date of floodCost of goods available for saleInventory at November 1, 2016		$Inventory at November 1, 2016
Accounts PayableAdd: Salvage goodsAdd: Estimated gross margin (profit)CashCost of goods available for saleEstimated cost of goods soldEstimated cost of inventory at date of floodEstimated loss on inventory in the floodInventory at November 1, 2016Net sales from November 1, 2016, to date of floodLess: Estimated gross margin (profit)Less: Salvage goodsPurchases from November 1, 2016, to date of floodPurchases from November 1, 2016, to date of flood		Purchases from November 1, 2016, to date of flood
Accounts PayableAdd: Estimated gross margin (profit)Add: Salvage goodsCashCost of goods available for saleEstimated cost of goods soldEstimated cost of inventory at date of floodEstimated loss on inventory in the floodInventory at November 1, 2016Less: Estimated gross margin (profit)Less: Salvage goodsNet sales from November 1, 2016, to date of floodPurchases from November 1, 2016, to date of floodCost of goods available for sale		$Cost of goods available for sale
Estimated cost of goods sold
Accounts PayableAdd: Estimated gross margin (profit)Add: Salvage goodsCashCost of goods available for saleEstimated cost of goods soldEstimated loss on inventory in the floodInventory at November 1, 2013Net sales from November 1, 2016, to date of floodPurchases from November 1, 2013, to date of floodNet sales from November 1, 2016, to date of flood	$Net sales from November 1, 2016, to date of flood
Accounts PayableAdd: Estimated gross margin (profit)Add: Salvage goodsCashCost of goods available for saleEstimated cost of goods soldEstimated loss on inventory in the floodInventory at November 1, 2016Less: Estimated gross margin (profit)Net sales from November 1, 2016, to date of floodPurchases from November 1, 2016, to date of floodLess: Estimated gross margin (profit)	Less: Estimated gross margin (profit)	Less: Estimated gross margin (profit)
Accounts PayableAdd: Estimated gross margin (profit)Add: Salvage goodsCashCost of goods available for saleEstimated cost of goods soldEstimated cost of inventory at date of floodEstimated loss on inventory in the floodInventory at November 1, 2016Less: Estimated gross margin (profit)Less: Salvage goodsNet sales from November 1, 2016, to date of floodPurchases from November 1, 2016, to date of floodEstimated cost of inventory at date of flood		$Estimated cost of inventory at date of flood
Accounts PayableAdd: Estimated gross margin (profit)Add: Salvage goodsCashCost of goods available for saleEstimated cost of goods soldEstimated cost of inventory at date of floodEstimated loss on inventory in the floodInventory at November 1, 2016Less: Estimated gross margin (profit)Less: Salvage goodsNet sales from November 1, 2016, to date of floodPurchases from November 1, 2016, to date of floodLess: Salvage goods		Less: Salvage goods
Accounts PayableAdd: Estimated gross margin (profit)Add: Salvage goodsCashCost of goods available for saleEstimated cost of goods soldEstimated loss on inventory in the floodInventory at November 1, 2016Less: Estimated gross margin (profit)Less: Salvage goodsNet sales from November 1, 2016, to date of floodPurchases from November 1, 2016, to date of floodEstimated loss on inventory in the flood		$Estimated loss on inventory in the flood