Question

You are called by Tim Duncan of Shamrock 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		$ 38,200
Purchases—goods placed in stock July 1–15		77,000
Sales revenue—goods delivered to customers (gross)		116,800
Sales returns—goods returned to stock		4,400

Your client reports that the goods on hand on July 16 cost $32,200, but you determine that this figure includes goods of $5,500 received on a consignment basis. Your past records show that sales are made at approximately 30% 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

Net sales = Sales revenue - sales returns
= $116800 - $4400 = $112400

Sales are made at 30% above cost, therefore
Cost of Goods Sold = Net Sales x 100 / 130 i.e. $112400 x 100 / 130 = $86461.54

Ending Inventory = Beginning Inventory + Purchases - Cost of Goods Sold
= $38200 + $77000 - $86461.54 = $28738.46

Owned Ending Inventory on hand = $32200 - $5500 = $26700

Therefore Inventory Lost due to theft = $28738.46 - $26700 = $2038.46