Every-Day Clothing had a November 1 merchandise inventory balance of $45,000. It made purchases of $80,000 and recorded sales of $130,000 during November. Its estimated gross profit on sales was 25%. On November 30, the store was destroyed by fire. What was the value of the merchandise inventory loss?

Explanation: The cost of goods sold is equal to sales less the gross profit on sales, or $97,500 ($130,000 x (1 - 0.25)). The lost inventory will be estimated as inventory available at cost less the cost of goods sold.