Question

Problem 9-6

Blossom 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)		$ 81,000		Sales revenue		$407,900
Purchases		295,600		Sales returns		20,700
Purchase returns		27,900		Gross profit % based on net selling price		32	%

Merchandise with a selling price of $29,400 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,000. 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

Calculate amount of inventory loss

Beginning inventory		81000
Purchase	295600
Less: Purchase return	-27900
Net purchase		267700
Cost of goods available for sale		348700
Cost of goods sold
Net Sales (407900-20700)	387200
Less: Gross profit	-123904	-263296
Ending inventory at the time of fire		85404
Undamaged cost of inventory (29400*68%)		-19992
Damaged cost of inventory		65412

Amount of inventory fire loss = 65412-8000 = $57412