Question

he inventory of Wildhorse Co. was destroyed by fire on June 1. From an examination of the accounting records, the following data for the first five months of the year were obtained: Sales $93,000; Sales Returns and Allowances $1,500; Sales Discounts $500; Freight Out $2,500; Purchases $52,200; Freight In $2,300; Purchase Returns and Allowances $2,800; and Purchase Discounts $1,300.

Determine the inventory lost by fire, assuming a beginning inventory of $25,600 and a gross profit margin of 40%.

Inventory lost by fire

Answer 1

Cost of goods available for sale = Opening Inventory + Purchases + Freight in - Purchase returns and allowances - Purchase discount

= $25,600 + $52,200 + $2,300 - $2,800 - $1,300

= $76,000

Cost of goods sold = (Sales - Sales returns and allowances - Sales discount) - Gross profit %

= ($93,000 - $1,500 - $500) - 40%

= $54,600

Goods lost by fire = Cost of goods available for sale - Cost of goods sold

= $76,000 - $54,600

= $21,400

Inventory lost by fire = $21,400