Question

On December 31, 2018 Mystic Morning Co. inventory burned. Sales and purchases for the year had...

On December 31, 2018 Mystic Morning Co. inventory burned. Sales and purchases for the year had been $1,500,000 and $980,000, respectively. The beginning inventory (Jan. 1, 2018) was $170,000; in the past Mystic’s gross profit has averaged 30% of selling price.

Instructions (18pts) Compute the estimated cost of inventory burned, and give entries as of December 31, 2018 to close merchandise accounts.

Business   Accounting   
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Answer #1
Estimated cost of inventory burned:
Beginning inventory 170000
Add: purchases 980000
1150000
Less: cost of goods sold
[Sales-gross profit=1500000-(1500000*30%)] 1050000
Cost of inventory burned 100000
Journal entries:
Debit Credit
Sales 1500000
Income summary 1500000
(Closed sales account)
Cost of goods sold 1050000
Fire loss 100000
Inventory 170000
Purchases 980000
(Closed other merchandise accounts)
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