Question

Exercise 9-17

You are called by Tim Duncan of Nash Co. on July 16 and asked to prepare a claim for insurance as a result of a theft that took place the night before. You suggest that an inventory be taken immediately. The following data are available.

Inventory, July 1		$ 37,800
Purchases—goods placed in stock July 1–15		89,800
Sales revenue—goods delivered to customers (gross)		124,200
Sales returns—goods returned to stock		4,400

Your client reports that the goods on hand on July 16 cost $32,000, but you determine that this figure includes goods of $5,600 received on a consignment basis. Your past records show that sales are made at approximately 40% over cost. Duncan’s insurance covers only goods owned.

Compute the claim against the insurance company. (Round ratios for computational purposes to 2 decimal places, e.g. 78.73% and final answer to 0 decimal places, e.g. 28,987.)

Claim against the insurance company

$

Answer 1

Inventory, July 1 = $37,800

Purchases—goods placed in stock July 1–15 = $89,800

Sales revenue—goods delivered to customers (gross) = $124,200

Sales returns—goods returned to stock = $4,400

Net sales = Sales - Sales return

= 124,200-4,400

= $119,800

Gross profit on sales = 40/140

= 28.57%

Gross profit = Net sales x 28.57%

= 119,800 x 28.57%

= $34,227

Cost of goods sold = Net sales - Gross profit

= 119,800-34,227

= $85,573

Inventory remaining after theft = $32,000

Goods on consignment basis = $5,600

Cost of goods sold = Beginning inventory + Purchases - Ending inventory

85,573 = 37,800+89,800- Ending inventory

Ending inventory = $42,027

Claim against insurance company = Ending inventory - (Inventory remaining after theft-Goods on consignment basis)

= 42,2027-(32,000-5,600)

= 42,027-26,400

= $15,627

Claim against the insurance company

$15,627

Kindly comment if you need further assistance. Thanks‼!