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On October 31, a flood at Payne Company’s only warehouse caused severe damage
to its entire inventory. Based on recent history, Payne has a gross profit of 25 percent of
net sales. The following information is available from Payne’s records for the 10 months
ended October 31.
Inventory, January 1 $ 520,000
Purchases 4,120,000
Purchase returns 60,000
Sales 5,600,000
Sales discounts 400,000
A physical inventory disclosed usable damaged goods that Payne estimates it can
sell for $70,000. Using the gross profit method, the estimated cost of goods sold for the
10 months ended October 31 should be
A. $680,000. C. $3,900,000.
B. $3,830,000. D. $4,200,000.

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