On March 15, a fire destroyed Blossom Company's entire retail inventory. The inventory on hand as of January 1 totaled $5300000. From January 1 through the time of the fire, the company made purchases of $1432000, incurred freight-in of $182000, and had sales of $3540000. Assuming the rate of gross profit to selling price is 20%, what is the approximate value of the inventory that was destroyed

The value of inventory destroyed=$4,082,000

Explanation:

The value of the inventory destroyed is the difference between the the cost of the total goods available for sale and the cost of goods sold

The value of inventory destroyed = cost of goods available for sale - value of inventory sold

Cost of goods sold = 3540,000 - (20%×  3540,000)= 2,832,000

The cost of goods available for dale = opening inventory + purchases + freight charges

$5300000 + $1432000 +  $182000 = 6,914,000

The value of inventory destroyed = 6,914,000 - 2,832,000 = 4082000

The value of inventory destroyed=$4,082,000

Since the reserve as 3.5%, the amount to keep on reserve was 0.035*15,300 = $535.5

Amount it was free to loan out = 15,300-535.5 = $14,764.5