Estimating ending inventory: perpetual system
Carol Lapaz owned a small company that sold boating equipment. The equipment was expensive, and a perpetual system was maintained for control purposes. Even so, lost, damaged, and stolen merchandise normally amounted to 5 percent of the inventory balance. On June 14, Carol’s warehouse was destroyed by fire. Just prior to the fire, the accounting records contained a $150,000 balance in the Inventory account. However, inventory costing $15,000 had been sold and delivered to customers the day of the fire but had not been recorded in the books at the time of the fire. The fire did not affect the showroom, which contained inventory that cost $40,000.
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