Merchandise with a selling price of $36,500 remained undamaged after the fire, a
ID: 2425769 • Letter: M
Question
Merchandise with a selling price of $36,500 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,680. The company does not carry fire insurance on its inventory.
Compute the amount of inventory fire loss. (Do not use the retail inventory method.)
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Inventory (beginning) $ 85,100 Sales revenue $431,700 Purchases 313,900 Sales returns 22,100 Purchase returns 35,900 Gross profit % based on net selling price 35 % Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following. Inventory (beginning) 85,100 Sales revenue Purcha Purchase returns $431,700 22,100 313,900 Ss returns 35,900 Gross profit % based on net selling price 35 % Merchandise with a selling price of $36,500 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,680. The company does not carry fire insurance on its inventory Compute the amount of inventory fire loss. (Do not use the retail inventory method.) Inventory fire lossExplanation / Answer
Cost of Goods sold
=Net sales- Gross profit
= [Sales- sales return]- Gross profit
=[$431,700-22,100]-$431,700 x 35%
=$409,600-$151,095=
=$258,505
Net purchases= Purchases- Purchase returns
=$313,900-$35,900
=$278,000
Ending inventory before fire= Beginning Inventory+ Net purchases- Cost of Goods sold
=$85,100+$278,000-$258,505
=$363,100-$258,505
=$104,595
Ending inventory after fire (cost)
= Ending inventory after fire (sales price)- GP%
=$36,500-$36,500 x 35%
=$36,500 x 65%
=$23,725
Cost of Inventory in fire loss=$104,595-$23,725= $80,870
Less: Amount Realized (8,680)
Inventory Fire loss $72,190