Question

On April 15, 2021, fire damaged the office and warehouse of Pearl Corporation. The only accounting record saved was the general ledger, from which the balance sheet data below was prepared.

PEARL CORPORATION MARCH 31, 2021
Cash	$18,820
Accounts receivable	37,970
Inventory, December 31, 2020	73,150
Land	35,110
Buildings	117,340
Accumulated depreciation		$38,686
Equipment	3,491
Accounts payable		25,266
Other accrued expenses		6,038
Common stock		107,500
Retained earnings		53,040
Sales revenue		137,170
Purchases	53,040
Miscellaneous expense	28,779
	$367,700	$367,700

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 $13,350: $5,386 paid to accounts payable as of March 31, $3,185 for April merchandise shipments, and $4,163 paid for other expenses. Deposits during the same period amounted to $13,250, which consisted of receipts on account from customers with the exception of a $907 refund from a vendor for merchandise returned in April.
3.		Correspondence with suppliers revealed unrecorded obligations at April 15 of $14,324 for April merchandise shipments, including $2,491 for shipments in transit (f.o.b. destination) on that date.
4.		Customers acknowledged indebtedness of $43,060 at April 15, 2021. It was also estimated that customers owed another $8,560 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $642 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 $565,870 $396,830 Net purchases 285,190 246,840 Beginning inventory 51,000 72,520 Ending inventory 73,150 51,000
6.		Inventory with a cost of $7,420 was salvaged and sold for $3,500. The balance of the inventory was a total loss.

Compute the amount of inventory fire loss. (Round ratios for computational purposes to 2 decimal places, e.g 78.52% and final answer to 0 decimal places, e.g. 28,987.)

Inventory fire loss

$

Answer 1

Sol:

Opening inventory , 2021	73,150
Add: Purchases	53,040
Add: Shipment charges	3,185
Add: Unrecorded obligations	14,342
Less:Shipment in transit	2,491
Less: Return of merchandise	907
Merchandise available for sale	140,319
Less: Cost of goods sold	90,066
Estimated inventory	50,253
Less: Salvage value	3500
Inventory fire loss	46,753

Workings:

Net Sales
2019	396830
2020	565870
Total sales		962700
Beginning inventory,2019	72,520
Purchases, 2019	246,840
Purchases, 2020	285,190
Less: Ending inventory, 2020	73,150
Cost of goods sold		531,400
Gross Profit		431,300

Gross Profit percentage = 431,300/ 962700= 44.80%

Estimated sales revenue	137,170
Receivables acknowledged	43060
Receivables not acknowledged	8560
Collections from receivables [13,250-907]	12,343
Less: Accounts receivable	37,970
Total sales	163,163
Less: Gross profit @44.80%	73,097
Cost of goods sold	90,066