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In: Accounting

Taki Company lost most of its inventory in a fire in December just before the year-end...

Taki Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following.

Inventory (beginning)	$ 80,700	Sales revenue	$408,300
Purchases	291,500	Sales returns	20,900
Purchase returns	28,000	Gross profit % based on net selling price	35	%

Merchandise with a selling price of $30,500 remained undamaged after the fire, and damaged merchandise has a net realizable value of $7,700. The company does not carry fire insurance on its inventory.

Compute the amount of inventory fire loss. (Do not use the retail inventory method.)

Expert Solution

Net Purchases = Purchases - Purchase return = $ 291,500 - $ 28,000 = $ 263,500

Net sales = Sales revenue – Sales return = $ 408,300 - $ 20,900 = $ 387,400

Cost of goods sold = Net sales – Gross profit = $ 387,400 x (1 – 0.35) = $ 387,400 x 0.65

= $ 251,810

Cost of goods sold = Beginning inventory + Net purchases – Ending inventory

$ 251,810 = $ 80,700 + $ 263,500 – Ending inventory

Ending inventory = $ 344,200 - $ 251,810 = $ 92,390

Cost of undamaged inventory = Selling price – Gross profit = $ 30,500 x (1 – 0.35) = $ 30,500 x 0.65

= $ 19,825

Cost of damaged inventory = Ending inventory - Cost of undamaged inventory

= $ 92,390 - $ 19,825 = $ 72,565

Amount of inventory by fire loss

= Cost of damaged inventory – Net realizable value of damaged inventory

= $ 72,565 - $ 7,700 = $ 648,65

Amount of inventory by fire loss is $ 648,65

ekkarill92 answered 1 year ago

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