Question

In: Accounting

Purple Corp. had a fire sprinkler go off in a warehouse, damaging 800 units of its regular inventory. Information with respect to the units:

Purple Corp. had a fire sprinkler go off in a warehouse, damaging 800 units of its regular inventory. Information with respect to the units:

• Cost, $52 per unit

• Regular selling price, $89 per unit

• Estimated selling price once repaired, $42 per unit

• Estimated repair cost, $18 per unit

• Variable selling cost, $4 per unit

The company keeps perpetual inventory records

 

Required:

1. Determine the value to be assigned to each damaged unit.

2. Assume that the company segregates damaged inventory in a separate account. Provide the journal entry.

Solutions

Expert Solution

Estimated sale price 

  

$42

Less: Estimated cost to repair

$18

  

 Estimated selling costs 

4

(22)

NRV for inventory

  

$20

 

Requirement 2

Damaged inventory is segregated in a separate account as part of the write-down entry:

 

Inventory, damaged goods (800 × $20),,,,,,,,,,,,,,,,,,,

16,000

  

Loss from water damage,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

25,600

  

Inventory (800 × $52),,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

  

41,600

Junaid answered 1 year ago
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