Question

You are called by Tim Duncan of Cheyenne 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		$ 35,500
Purchases—goods placed in stock July 1–15		92,400
Sales revenue—goods delivered to customers (gross)		113,200
Sales returns—goods returned to stock		4,300

Your client reports that the goods on hand on July 16 cost $32,000, but you determine that this figure includes goods of $5,700 received on a consignment basis. Your past records show that sales are made at approximately 40% over cost. Duncan’s insurance covers only goods owned.

Compute the claim against the insurance company. (Round ratios for computational purposes to 2 decimal places, e.g. 78.73% and final answer to 0 decimal places, e.g. 28,987.)

Claim against the insurance company $

Answer 1

Solution: $23,814

Working:

Beginning inventory (at cost)		35,500
Purchases (at cost)		92,400
Goods available (at cost)		127,900
Sales (at selling price)	113,200
Less sales returns	-4,300
Net sales	108,900
Less: Gross profit × (40%/(100%+40%) * 108,900)	31114
Net sales (at cost)		77,786
Estimated inventory (at cost)		50,114
Less: Goods on hand ($32,000 - $5,700)		26,300
Claim against insurance		23,814