On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available: Sales, January 1 through July 8 $ 695,000 Inventory, January 1 140,000 Purchases, January 1 through July 8 655,000 Gross profit ratio 30 % What is the estimated inventory on July 8 immediately prior to the fire

$308,500

Explanation:

The computation of estimated inventory is given below:-

Cost of Goods Available = Beginning Inventory + Net Purchases

= $140,000 + $655,000

= $795,000

Cost of goods Sold = (100 - 30) ÷ 100 × $695,000

= $486,500

Ending Inventory = Cost of goods available - Cost of good sold

= $795,000 - $486,500

= $308,500

Therefore for computing the ending inventory we simply deduct the cost of goods sold from cost of goods available.

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