Question

1. Gross Profit Method You are called by Kevin Garnett of Celtic Co. on July 16...

1. Gross Profit Method You are called by Kevin Garnett of Celtic Co. on July 16 and asked to prepare a claim for insurance as a result of a theft that took place the night before. You suggest that an inventory be taken immediately. The following data are available.

Inventory, July 1 $38,000

Purchases-goods placed in stock July 1-15 90,000

Sales-goods delivered to customers (gross) 116,000

Sales returns-goods returned to stock 4,000

Your client reports that the goods on hand on July 16 cost $30,500, but you determine that this figure includes goods of $6,000 received on a consignment basis. Your past records show that sales are made at approximately 25% over cost. Garnett's insurance covers only goods owned. Compute the claim against the insurance company.

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Answer #1

Answer- The claim against the insurance company= $13900.

Explanation-

CELTIC CO.
CALCULATION OF CLAIM AGAINST INSURANCE COMPANY
Particulars Amount Amount
$ $
Beginning inventory (at cost) 38000
Purchases (at cost) 90000
Goods available (at cost) 128000
Sales (at selling price) 116000
Less:- Sales returns 4000
Net Sales 112000
Less:-Gross Profit ($112000*20%) 22400
Net Sales (at cost) 89600
Estimated ending inventory (at cost) 38400
Less:- Goods on hand ($30500-$6000) 24500
Claim against insurance company 13900

Where- Computation of gross profit = (25%/100%+25%)

=20% of selling price

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