Question

P9-4B (Gross Profit Method) Higgs Company lost most of its inventory in a fire in November just before the year-end physical inventory was taken. Corporate records disclose the following. Inventory (beginning) $186,000 Sales $863,000 Purchases 667,000 Sales returns 64,000 Purchase returns 46,000 Gross profit % based on net selling price 25% Merchandise with a selling price of $65,000 remained undamaged after the fire, and damaged merchandise has a salvage value of $26,400. The company does not carry fire insurance on its inventory. Instructions Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)

Answer 1

Computing the fire loss incurred:

Particulars	Amount($)	Amount($)
Beginning Inventory		186,000
Add: Purchases less returns	(667,000-46,000)	621,000
Less: Estimated cost of goods sold
Sales less returns less profit on Net sale	(863,000-64,000) - 799,000*25%	(599,250)
Esimated Ending Inventory		207,750
Less: Estimated cost of Undamaged Inventory (Selling price - profit on sale)	65,000- 65,000*25%	(48,750)
Less: salvage value of damaged inventory		(26,400)
Fire loss incurred		132,600