Assume Smith Company, a camera store, lost some inventory in a fire on August 15. To file an insurance claim, Smith Company must estimate its August 15 inventory by the gross profit method. Assume that for the past two years Smith Company’s gross profit has averaged 45% of net sales. Suppose that Smith Company’s inventory records reveal the following data:
Inventory, August 1.................. $ 57,200
Transactions during August:
Purchases ................................. 490,800
Purchase discounts ................... 15,000
Purchase returns....................... 70,800
Sales ......................................... 665,000
Sales returns ............................. 12,000

Requirements
1. Estimate the cost of the lost inventory using the gross profit method.
2. Prepare the August income statement for this product through gross profit. Show the detailed computations of cost of goods sold in a separate schedule.