Question

In: Accounting

On April 15, 2021, fire damaged the office and warehouse of Sheffield Corporation. The only 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
MARCH 31, 2021

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:

Year Ended
December 31

2020

2019

Net sales $568,690 $395,930
Net purchases 294,380 258,400
Beginning inventory 53,800 69,890
Ending inventory 72,770 53,800
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

Solutions

Expert Solution

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

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