Merrett Company lost 80% of its inventory in a fire on March 23, 2021. The accounting records showed the following gross profit data for February and March:

Merrett is fully insured for fire losses but must prepare a report for the insurance company.

Instructions

a. Calculate gross profit for the month of February.

b. Calculate the gross profit margin percentage for February.

c. Determine the amount of inventory lost by Merrett Company as a result of the fire using the gross profit method.

The insurance adjustor is concerned that this method of calculating the cost of the inventory destroyed might not be accurate. What factors contribute to the accuracy of the ending inventory amount when using the gross profit method?

Transcribed Image Text:

February $310,000 March (to Mar. 23) Sales $293,500 6,800 Sales returns and allowances 7,000 Purchases 204,000 197,000 4,940 Purchase returns and allowances 5,300 Freight in Beginning inventory Ending inventory 4,000 3,940 18,500 26,200 26,200 ?