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Chapter 9: 16E (page 479)

Wallace Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation鈥檚 books disclosed the following. Beginning inventory \(170,000 Sales revenue \)650,000 Purchases for the year 390,000 Sales returns 24,000 Purchase returns 30,000 Rate of gross profi t on net sales 40% Merchandise with a selling price of \(21,000 remained undamaged after the fire. Damaged merchandise with an original selling price of \)15,000 had a net realizable value of $5,300. Instructions Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage.

Short Answer

Expert verified

Inventory loss due to fire is $136,500.

Step by step solution

01

Calculation of cost of goods sold

Cost of goods sold is calculated as follows:

Costofgoodssold=Salesrevenue-Salesreturns脳1-Grossprofitpercentage=$650,000-$24,000脳1-40%=$375,600

02

Calculation of cost of undamaged inventory

Cost of undamaged inventory is calculated as follows:

Costofundamagedinventory=Sellingpriceofundamagedinventory脳1-Grossprofitpercentage=$21,000脳1-40%=$12,600

03

Calculation of inventory loss by fire

Inventory loss by fire is calculated as follows:

Inventorylossbyfire=Beginninginventory+Purchases-Purchasereturn-Costofgoodssold-Undamagedinventory-Realizablevalueofdamagedinventory=$170,000+$390,000-$30,000-$375,600-$12,600-$5,300=$136,500

Thus, inventory loss by fire equals $136,500.

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Most popular questions from this chapter

Presented below is information related to Rembrandt Inc.鈥檚 inventory, assuming Rembrandt uses lower-of-LIFO cost-or-market. (per unit) Skis Boots Parkas Historical cost \(190.00 \)106.00 $53.00 Selling price 212.00 145.00 73.75 Cost to distribute 19.00 8.00 2.50 Current replacement cost 203.00 105.00 51.00 Normal profit margin 32.00 29.00 21.25 Determine the following: (a) the two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of cost-or-market computation for skis, (b) the cost amount that should be used in the lower-of-cost-or-market comparison of boots, and (c) the market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.

The financial statements of ConAgra Foods, Inc.鈥檚 2014 annual report disclose the following information. (in millions) 2014 2013 2012 Year-end inventories \(2,201 \)2,077 \(2,341 Fiscal Year 2014 2013 Net sales \)17,703 $15,427 Cost of goods sold 13,980 11,864 Net income 315 786Instructions Compute ConAgra鈥檚 (a) inventory turnover and (b) the average days to sell inventory for 2014 and 2013.

Deere and Company reported inventory in its balance sheet as follows. Inventories $1,999,100,000 What additional disclosures might be necessary to present the inventory fairly?

Starfish Company (a company using GAAP and the LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish鈥檚 financials? (a) During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (b) During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (d) During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory methodare used as compared to GAAP and LIFO.

Presented below is information related to Aaron Rodgers Corporation for the current year. Beginning inventory \( 600,000 Purchases 1,500,000 Total goods available for sale \)2,100,000 Sales revenue 2,500,000 Instructions Compute the ending inventory, assuming that (a) gross profit is 45% of sales, (b) gross profit is 60% of cost, (c) gross profit is 35% of sales, and (d) gross profit is 25% of cost.
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