Question

On April 15, 2021, fire damaged the office and warehouse of Marigold Corporation. The only accounting record saved was the general ledger, from which the balance sheet data below was prepared.

MARIGOLD CORPORATION MARCH 31, 2021
Cash	$19,160
Accounts receivable	42,070
Inventory, December 31, 2020	72,620
Land	35,640
Buildings	111,680
Accumulated depreciation		$41,997
Equipment	3,878
Accounts payable		21,638
Other accrued expenses		21,320
Common stock		103,700
Retained earnings		49,110
Sales revenue		121,800
Purchases	49,110
Miscellaneous expense	25,407
	$359,565	$359,565

The following data and information have been gathered.

1.		The fiscal year of the corporation ends on December 31.
2.		An examination of the April bank statement and canceled checks revealed that checks written during the period April 1–15 totaled $11,780: $5,144 paid to accounts payable as of March 31, $3,099 for April merchandise shipments, and $3,864 paid for other expenses. Deposits during the same period amounted to $11,660, which consisted of receipts on account from customers with the exception of a $872 refund from a vendor for merchandise returned in April.
3.		Correspondence with suppliers revealed unrecorded obligations at April 15 of $15,155 for April merchandise shipments, including $2,326 for shipments in transit (f.o.b. destination) on that date.
4.		Customers acknowledged indebtedness of $43,470 at April 15, 2021. It was also estimated that customers owed another $7,970 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $657 will probably be uncollectible.
5.		The companies insuring the inventory agreed that the corporation’s fire-loss claim should be based on the assumption that the overall gross profit rate for the past 2 years was in effect during the current year. The corporation’s audited financial statements disclosed this information:
		Year Ended December 31 2020 2019 Net sales $495,930 $385,220 Net purchases 306,190 257,540 Beginning inventory 52,300 64,120 Ending inventory 72,620 52,300
6.		Inventory with a cost of $7,070 was salvaged and sold for $3,160. The balance of the inventory was a total loss.

Compute the amount of inventory fire loss. (Round ratios for computational purposes to 2 decimal places, e.g 78.52% and final answer to 0 decimal places, e.g. 28,987.)

Inventory fire loss

$

Answer 1

Solution:

Computation of gross profit:

Particulars	Amount	Amount
Net sales:
2019	$385,220
2020	$495,930
Total sales		$881,150
Beginning inventory 2019	$64,120
Purchases 2019	$257,540
Purchases 2020	$306,190
Less: Ending inventory 2020	($72,620)
Cost of goods sold		($555,230)
Gross profit		$325,920

Gross profit percenatge = $325,920/$881,150 =36.99%

Computation of cost of goods sold:

Particulars	Amount
Estimated sales revenue	$121,800
Receivable acknowledged	$43,470
Receivable not acknowledged	$7,970
Collection from receivables ($11,660 -$872)	$10,788
Less: Accounst receivable	($42,070)
Total sales	$141,958
Less:Gross profit (@36.99%)	($52,510)
Cost of goods sold	$89,448

Computation of Inventory fire loss:

Particulars	Amount
Opening inventory 2021	$72,620
Add: Purchases	$49,110
Add: Shipment charges	$3,099
Add: Unrecorded obligation	$15,155
Less: Shipment in transit	($2,326)
Less: Return of merchandise	($872)
Merchandise available for sale	$136,786
Less: Cost of goods sold	($89,448)
Estimated inventory	$47,338
Less: Salvage value	($3,160)
Inventory fire loss	$44,178

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