The merchandise inventory was destroyed by fire on August 19. The following data were obtained from the accounting records:
|
Jan. 1 |
Merchandise inventory |
$ 360,000 |
|
Jan. 1–Aug. 19 |
Purchases (net) |
3,200,000 |
|
|
Sales (net) |
5,200,000 |
|
|
Estimated gross profit rate |
36% |
a. Estimate the cost of the merchandise destroyed.
b. Briefly describe the situations in which the gross profit method is useful.