Question

amarisk Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation’s books disclosed the following.

Beginning inventory		$158,100		Sales revenue		$646,500
Purchases for the year		391,500		Sales returns		22,000
Purchase returns		31,100		Rate of gross profit on net sales		30	%

Merchandise with a selling price of $23,100 remained undamaged after the fire. Damaged merchandise with an original selling price of $15,700 had a net realizable value of $5,500.

Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage.

Answer 1

CALCULATION OF COST OF SALES

SALES			$        646,500
LESS: SALES RETURNE			$          22,000
NET SALES			$        624,500
LESS: GROSS PROFIT			$        187,350
COST OF SALES			$        437,150

COST OF SALES = OPENING INVENTORY + NET PURCHASE - CLOSING INVENTORY

437150 = 158100 + 360400 - CLOSING INVENTORY

THEREFORE ,

CLOSING INVENTORY = 81350

NOTE; NET PURCHASE = PURCHASE - PURCHASE RETURNE

= 391500 - 31100

=360400

CLOSING INVENTORY		$        81,350
LESS;
COST OF UNDAMEDGED MERCHANDISE`	$          16,170
NET REALISABLE VALUE OF UNDAMDGED MERCHANDISE	$            5,500	$        21,670
AMOUNT OF LOSS AS A RESULT OF FIRE		$        59,680