In: Accounting
On April 15, 2021, fire damaged the office and warehouse of
Sheffield Corporation. The only accounting record saved was the
general ledger, from which the balance sheet data below was
prepared.
SHEFFIELD CORPORATION |
||
Cash |
$19,110 |
|
Accounts receivable |
36,050 |
|
Inventory, December 31, 2020 |
72,770 |
|
Land |
35,590 |
|
Buildings |
106,820 |
|
Accumulated depreciation |
$37,831 |
|
Equipment |
3,460 |
|
Accounts payable |
24,749 |
|
Other accrued expenses |
6,429 |
|
Common stock |
98,100 |
|
Retained earnings |
52,200 |
|
Sales revenue |
135,270 |
|
Purchases |
52,200 |
|
Miscellaneous expense |
28,579 |
|
$354,579 |
$354,579 |
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 $13,230: $5,714 paid to accounts payable as of March 31, $3,561 for April merchandise shipments, and $3,559 paid for other expenses. Deposits during the same period amounted to $11,868, which consisted of receipts on account from customers with the exception of a $949 refund from a vendor for merchandise returned in April. | |||||||||||||||||||||||||||||||
3. | Correspondence with suppliers revealed unrecorded obligations at April 15 of $16,306 for April merchandise shipments, including $2,488 for shipments in transit (f.o.b. destination) on that date. | |||||||||||||||||||||||||||||||
4. | Customers acknowledged indebtedness of $44,740 at April 15, 2021. It was also estimated that customers owed another $8,800 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $608 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: | |||||||||||||||||||||||||||||||
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6. | Inventory with a cost of $7,150 was salvaged and sold for $3,510. The balance of the inventory was a total loss. |
Compute the amount of inventory fire loss
Opening inventory , 2021 | 72,770 |
Add: Purchases | 52,200 |
Add: Shipment charges | 3,561 |
Add: Unrecorded obligations | 16,306 |
Less:Shipment in transit | 2,488 |
Less: Return of merchandise | 949 |
Merchandise available for sale | 141,400 |
Less: Cost of goods sold | 93313 |
Estimated inventory | 48087 |
Less: Salvage value | 3510 |
Inventory fire loss | 44577 |
Workings:
Net Sales | ||
2019 | 395930 | |
2020 | 568690 | |
Total sales | 964620 | |
Beginning inventory,2019 | 69,890 | |
Purchases, 2019 | 258,400 | |
Purchases, 2020 | 294,380 | |
Less: Ending inventory, 2020 | 72,770 | |
Cost of goods sold | 549900 | |
Gross Profit | 414720 |
Gross Profit percentage = 414720/ 964620 = 42.99%
Estimated sales revenue | 135,270 |
Receivables acknowledged | 44740 |
Receivables not acknowledged | 8800 |
Collections from receivables [11868-949] |
10919 |
Less: Accounts receivable | 36,050 |
Total sales | 163,679 |
Less: Gross profit @42.99% | 70366 |
Cost of goods sold | 93313 |