On November 21, 2010, 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 $10,000. The following information was available from Hodge’s accounting records for Product Tex:
Inventory at November 1, 2010 ............. $100,000
Purchases from November 1, 2010 to date of fire ...... 140,000
Net sales from November 1, 2010 to date of fire ...... 220,000
Based on recent history, Hodge had a gross margin (profit) on Product Tex of 30% of net sales.
Prepare a schedule to calculate the estimated loss on the inventory in the fire, using the gross margin (profit) method. Show supporting computations in good form.