Question

On September 1 of the current year, Scots Company experienced a flood that destroyed the company's entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $215,450. Inventory purchased during August was $192,530. Sales for the month of August were $542,500. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.

• $190,980

• $87,480

• $134,520

• $82,480

• $81,480

Maxie’s Game World sold games to a customer on credit for $4,300, terms 1/10, n/30 and the cost of the games was $3,400. When recording the collection from the customer made within the discount period, in its cash receipts journal, Maxie’s would enter:

• $4,300 in the Cash Dr. column and $4,300 in the Accounts Receivable Cr. column.

• $4,257 in the Cash Dr. column and $4,257 in the Accounts Receivable Cr. column.

• $4,257 in the Cash Dr. column, $43 in the Sales Discount Dr. column and $4,300 in the Accounts Receivable Cr. column.

• $4,300 in the Accounts Receivable Dr./Sales Cr. column and $4,300 in the Cash Cr. column.

• $4,300 in the Cash Dr. column. $3,400 in the Sales Cr. column, and $3,400 in the Cost of Goods Sold Dr./Inventory Cr. column.

Answer 1

1) calculate estimated ending inventory

Beginning inventory		215450
Purchase		192530
Total Cost of goods available for sale		407980
Sales	542500
Less; Gross profit	-217000
Cost of goods sold		-325500
Ending inventory		82480

So answer is d) $82480

2) Journal entry

Date	account and explanation	debit	Credit
	Cash (4300*99%)	4257
	Sales discount	43
	Account receivable		4300
	(To record collection)

So answer is c) $4,257 in the Cash Dr. column, $43 in the Sales Discount Dr. column and $4,300 in the Accounts Receivable Cr. column.