Question

Part Six: Problem (7 points) In 2019, Puppy Specialties experienced a major loss due to a fire in the warehouse. The fire destroyed its entire inventory. The company began the year with inventory of $598. It made purchases of $2,400 but returned $24 worth of merchandise. Sales prior to the fire were $3,945. Puppy Specialties must use the gross profit method to determine inventory on hand on the date of the fire. Below is an excerpt of its income statement for the last year. 2018 S3,735 1.494 Net Sales Cost of Goods Sold Selling and Administrative Expenses Income from Operations 461 $1,729 Instructions: A. Assume that Puppy Specialties uses the most recent year to determine the gross profit percentage, calculate the following amounts for the year 2019. Estimated Cost of Goods Sold Estimated Gross Profit Estimated Ending Inventory destroyed by the fire

Answer 1

A)
Gross profit ratio:	2018
Sales (b)	$3,735
Less: Cost of Goods sold	($1,494)
Gross Profit (a)	$2,241
Gross Profit Ratio (a/b*100)	60%
	2019
Estimated Gross Profit for the current year (2019) based on previous data ($3,945*60/100)	$2,367
Sales for the current year (2019) (given)	$3,945
Less: Gross profit in 2019	($2,367)
Estimated Cost of Goods Sold in 2019	$1,578
Beginning Inventory in 2019	$598
Add: Purchases in 2019	$2,400
Less: Purchase Returns in 2019	($24)
Cost of Goods Available for Sale in 2019	$2,974
Less: Estimated Cost of Goods Sold in 2019	($1,578)
Estimated Ending Inventory destroyed by the Fire	$1,396