Suppose an Indigo bookstore lost inventory in a fire. To file an insurance claim, Indigo must estimate its inventory by the gross profit method. For the past two years, Indigo's gross profit has averaged 40% of net sales. Indigo's inventory records reveal the following data:
Inventory, July 1, 2014 ..................................................................... $ 360,000
Transactions during July
Purchases ...................................................................................... 628,000
Purchase discounts ........................................................................ 4,500
Purchase returns ........................................................................... 9,000
Sales revenue ................................................................................ 1,000,000
Sales returns .................................................................................. 170,000
Requirements
1. Estimate the cost of the lost inventory using the gross profit method.
2. Prepare the July 2014 income statement through gross profit. Show the detailed computation of cost of goods sold in a separate schedule.