The records of California Marine Products, Inc., revealed the following information related to inventory destroyed in an earthquake:

Inventory, beginning of period $300,000

Purchases to date of earthquake 160,000

Net sales to date of earthquake 450,000

Gross profit ratio 30%

Inventory, physical count after earthquake 45,000

Determine the estimated amount of inventory destroyed by the earthquake.

$100,00 was destroyed by the earthquake

Explanation:

The amount of inventory damaged by the earthquake can be estimated as shown in the computation below:

Opening inventory                                             $300,000

Purchases                                                            $160,000

Cost of goods available                                       $460,000

Net sales                                         $450,000

less gross profit(30%*$450,000)  ($135,000)

Cost of goods sold                          $315,000

The difference costs of goods sold and costs of goods available for sale is the closing goods,which is $145,000       ($460,000-$315,000)

Envisaged  closing inventory                          $145,000

actual inventory left after earthquake            ($45,000)

inventory lost to earthquake                          $100,000

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