QUESTION: ON NOVEMBER 21, 2016, A FIRE 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 $17,000. THE FOLLOWING INFORMATION WAS AVAILABLE FROM THE RECORDS OF HODGE'S PERIODIC INVENTORY SYSTEM: INVENTORY, NOVEMBER 1 $ 125,000 NET PURCHASES FROM NOVEMBER 1, TO THE DATE OF THE FIRE 145,000 NET SALES FROM NOVEMBER 1, TO THE DATE OF THE FIRE 225,000 BASED ON RECENT HISTORY, HODGE'S GROSS PROFIT RATIO ON PRODUCT TEX IS 40% OF NET SALES. REQUIRED: CALCULATE THE ESTIMATED LOSS ON THE INVENTORY FROM THE FIRE, USING THE GROSS PROFIT METHOD.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Required: calculate the estimated loss on the inventory

QUESTION:
ON NOVEMBER 21, 2016, A FIRE 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 $17,000.
THE FOLLOWING INFORMATION WAS AVAILABLE
FROM THE RECORDS OF HODGE'S PERIODIC
INVENTORY SYSTEM: INVENTORY, NOVEMBER 1
$ 125,000 NET PURCHASES FROM NOVEMBER
1, TO THE DATE OF THE FIRE 145,000 NET
SALES FROM NOVEMBER 1, TO THE DATE OF THE
FIRE 225,000 BASED ON RECENT HISTORY,
HODGE'S GROSS PROFIT RATIO ON PRODUCT TEX
IS 40% OF NET SALES.
REQUIRED: CALCULATE THE ESTIMATED LOSS ON
THE INVENTORY FROM THE FIRE, USING THE
GROSS PROFIT METHOD.
Transcribed Image Text:QUESTION: ON NOVEMBER 21, 2016, A FIRE 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 $17,000. THE FOLLOWING INFORMATION WAS AVAILABLE FROM THE RECORDS OF HODGE'S PERIODIC INVENTORY SYSTEM: INVENTORY, NOVEMBER 1 $ 125,000 NET PURCHASES FROM NOVEMBER 1, TO THE DATE OF THE FIRE 145,000 NET SALES FROM NOVEMBER 1, TO THE DATE OF THE FIRE 225,000 BASED ON RECENT HISTORY, HODGE'S GROSS PROFIT RATIO ON PRODUCT TEX IS 40% OF NET SALES. REQUIRED: CALCULATE THE ESTIMATED LOSS ON THE INVENTORY FROM THE FIRE, USING THE GROSS PROFIT METHOD.
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