Rudy brothers is a large retail furniture company that operates in two adjacent

Gross Profit Method 506 P5. Rudy Brothers is a large retail furniture company that operates in two adja cent warehouses. One warehouse is a showroom, and the other is used to store merchandise. On the night of June 22, 2011, a fire broke out in the storage ware- house and destroyed the merchandise stored there. Fortunately, the fire did not reach the showroom, so all the merchandise on display was saved Although the company maintained a perpetual inventory system, its records were rather haphazard, and the last reliable physical inventory had been taken on December 31. In addition, there was no control of the tlow of goods between the showroom and the warehouse. Thus, it was impossible to tell what goods should have been in either place. As a result, the insur- ance company required an independent estimate of the amount of loss. The insurance company examiners were satisfied when they received the following intormation: Chapter Assignments38 Merchandise inventory on December 31, 2010 Purchases, January 1 to June 22, 2011 Purchases renums, January 1 to June 22, 2011 $363,700.00 603,050.00 (2,676.50) 13,275.00 Freight-in, January I to June 22, 2011 Sales, January 1 to June 22, 2011 Sales rerurns, January I to June 22, 2011 Merchandise inventory in showroom on lune 22, 2011 Average gross margin 989 762.50 (7.450.00) 100,740.00 44% Reguired 1. Prepare a schedule that estimates the amount of the inventory lost in the fire 2 What are some other reasons management migh need to estimate the amount of inventory? User insighit