Question

Grouper Corp. lost most of its inventory in a fire in December, just before the year-end physical inventory was taken. The corporation’s books disclosed the following:

Beginning inventory		$	370,000		Sales		$	1,391,800
Purchases for the year			960,000		Sales returns			50,000
Purchase returns			82,000		Gross margin on sales			47	%

Merchandise with a selling price of $40,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $26,000 had a net realizable value of $9,600.

Calculate the amount lost because of the fire, assuming that the corporation had no insurance coverage.

Loss of inventory due to fire $

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Prepare the journal entry to record the loss and account for the damaged inventory in a separate Damaged Inventory account. In the same entry, record cost of goods sold for the year ended December 31.

Answer 1

part A) Calulation Loss of inventory due to fire

Inventory in the beg.	3,70,000
Add purchase less returns	8,78,000
Goods available to sale	1248000
sales less ret.	1341800
less G.Pr.@47%	630646	711154
Inventory in the hand(unadjusted)	536846
Less undamaged goods-40000*(1-0.47)	21200
Inventory in the hand damaged	515646
Less Realisable value of damaged goods	9600
Loss of inventory due to fire	506046

Part-B) Journal entry-

Cost of goods account    debit    506046

To Inventory account    506046

   (recording the loss and account for the damaged inventory)

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