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Estimated cost of burned inventory

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On December 31, 2007 Carr Company's inventory burned. Sales and purchases for the year had been $1,4000,000 and $980,000, respectively. The beginning inventory (Jan. 1, 2007) was $170,000,in the past Carr's profit has averaged 40% of selling price.

Compute the estimated cost of inventory burned, and give entries as of December 31, 2007 to close merchandise accounts.

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Solution Summary

The solution explains the calculation of the estimated cost of burned inventory and the related journal entry.

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In this case we use the gross profit method. Using the gross profit we can find out the cost of inventory that has been sold. The remaining inventory would have been burnt.

Total inventory ...

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