On July 1, an explosion destroyed a fireworks supply company. A small amount of inventory valued at $4,500 was saved. An estimate of the amount of inventory lost is needed for insurance purposes. The following information is available:
The normal gross profit ratio is 70%. The insurance company will pay the supply company $50,000.
1. Using the gross profit method, estimate the amount of inventory lost in the explosion.
2. Prepare the appropriate journal entry to recognize the inventory loss and the insurance reimbursement.