Question

Problem 9-6

Sweet Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following.

Inventory (beginning)		$ 81,100		Sales revenue		$408,700
Purchases		285,300		Sales returns		20,700
Purchase returns		27,500		Gross profit % based on net selling price		33	%

Merchandise with a selling price of $29,500 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,300. The company does not carry fire insurance on its inventory.

Compute the amount of inventory fire loss. (Do not use the retail inventory method.)

Inventory fire loss

$

Answer 1

Answer; inventory fire loss = $50,775

Operating inventory		$81000
Purchases		285,300
Purchase returns		(27500)
Cost of goods available for sale		$338,800
Sales	$408,700
Sales returns	(20700)
Net sales	$388,000
Less gross profit (388,000*0.33)	$128,040
Cost of goods sold		$259,960
Ending inventory (before fire adjustment)		$78,840
Less physical inventory undamaged at cost $29500*(1-0.33)		($19,765)
Less net realisable value damaged		($8300)
Fire loss in inventory		$50,775

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