The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:

Jan. 1	Merchandise Inventory	$ 340,000
Jan. 1 to Dec. 13	Purchases (net)	2,950,000
	Sales	4,460,000
	Estimated gross profit rate	40%

A.	Estimate the cost of the merchandise destroyed. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.
B.	In which situations would the gross profit method be useful?

Estimated cost of merchandise sold
Estimated merchandise inventory, December 13
Less estimated gross profit
Merchandise available for sale
Merchandise inventory, January 1
Plus estimated gross profit
Purchases (net), January 1-December 13
Ratio of cost to retail price
Sales, January 1-December 13

A. Estimate the cost of the merchandise destroyed. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

Estimated Cost of Merchandise Destroyed

1			Cost
2
3
4
5
6
7
8

B. The gross profit method is useful. Check all that apply.

for determining the sales price of merchandise.

for estimating inventories for monthly or quarterly financial statements.

for estimating the cost of merchandise destroyed by fire or other disasters.

for deciding whether the inventory has gone out of style and must be marked down.

to help management decide between FIFO, LIFO, and weighted average inventory cost flow methods.