On September 1 of the current year, Scots Company experienced a flood that destroyed the company's entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $215,450.Inventory purchased during August was $192,530.Sales for the month of August were $542,500.Assuming the company's typical gross profit ratio is 40%,estimate the amount of inventory destroyed in the flood. A) $87,480B) $134,520C) $109,980D) $82,480E) $81,480

D) $82,480

Explanation:

The computation of the amount of inventory destroyed is shown below:-

Cost of Goods available for sale

= Beginning Inventory + Inventory purchased

= $215,450 + $192,530

= $407,980

Cost of Goods Sold = Sales - Gross profit

= $542,500 - ($542,500 × 40%)

= $325,500

The Estimated amount of inventory destroyed

= Cost of Goods available for sale  - Cost of goods sold

= $407,980 - $325,500

= $82,480

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