Select information for Rays Corp.'s inventory was available as follows for calendar 2020:

Sales............................................... $540,000

Net purchases................................. 380,000

Beginning inventory....................... 75,000

Rays gross profit on sales was 30% last year, its first year of operations. A fire on December 31, 2020, destroyed the entire inventory.

Instructions

1. Using the gross profit method, calculate the estimated cost of the inventory destroyed in the fire. (5 marks)
2. Prepare entries on December 31, 2020, to close the inventory accounts. (4 marks)