Gross Profit Method On July 23, the company’s inventory was destroyed in a hurricane-related flood….

Gross Profit Method

On July 23, the company’s inventory was destroyed in a hurricane-related flood. For insurance purposes, the company must reliably estimate the amount of inventory on hand on

July 23. The company uses a periodic inventory system. The following data have been assembled:

Inventory, January 1                                                          

$1,000,000

Purchases, January 1–July 23                                                    

3,700,000

Sales, January 1–July 23                                                        

5,000,000

Historical gross profit percentages:

 

Last year                                                               

60%

Two years ago                                                           

55%

Estimate the company’s inventory as of July 23 using (1) last year’s gross profit percentage and (2) the gross profit percentage from two years ago.

 

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