Gross profit method On April 15, 2011, fire damaged the office and warehouse of
ID: 2375071 • Letter: G
Question
Gross profit methodOn April 15, 2011, fire damaged the office and warehouse of Stanislaw Corporation. The only accounting record saved was the general ledger, from which the trial balance was prepared.
Stanislaw Corporation
Trial Balance
March 31, 2011
Cash $20,000
Accounts receivables $40,000
Inventory, December 31, 2010 $75,000
Land $35,000
Building and Equipment $110,000
Accumulated Depreciation $41,300
Other assets $3,600
Accounts payables $23,700
Other expense accruals $10,200
Capital stock $100,000
Retained earnings $52,000
Sales $135,000
Purchases $52,000
Other expenses $26,600
$362,200 $362,200
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 of April 1-15 totaled $13,000: $5700 paid to accounts payable as of March 31, $3400 for April merchandise shipments, and $3900 paid for other expenses. Deposits during the same period amounted of $12,950, which consisted of receipts on account from customers with the exception of a $950 refund from a vendor for merchandise returned in April.
3. Correspondence with suppliers revealed unrecorded obligations at April 15 of $15,600 for April merchandise shipments, including $2300 for shipments in transit (f.o.b. shipping point) on that date.
4. Customers acknowledged indebtedness of $46,000 at April 15, 2011. It was also estimated that customers owe another $8000 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $600 will probably by uncollectible.
5. The companies insuring the inventory agreed that the corporations' fire-loss claim should be based on the assumption that the overall gross profit ratio for the past 2 years was in effect during the current year. The corporations' audited financial statements disclosed this information:
Year Ended
December 31
2010 2009
Net sales $530,000 $390,000
Net purchases $280,000 $235,000
Beginning Inventory $50,000 $66,000
Ending Inventory $75,000 $50,000
6. Inventory with a cost of $7000 was salvaged and sold for $3500. The balance of the inventory was a total loss.
Instructions
Prepare a schedule computing the amount of inventory fire loss. The supporting schedule of the computation fo the gross profit should be in good form. (AICPA adapted)
Explanation / Answer
Stanislaw Corporation Computation of inventory fire loss 15-Apr-11 Inventory 1/1/11 $75,000 Purchase 1 Jan 11 – 31 March 11 52,000 April merchandise shipment paid 3,400 Unrecorded Purchases on account 15,600 Total 1,46,000 Less:Shipments in transit $2,300 Merchandise returned 950 3,250 Merchandise available for sale 1,42,750 Less: Sales 1/1/11- 31/3/11 1,35,000 Sales 1/4/11 - 15/4/11 Acknowledged Receivables 46,000 Estimated receivables not acknowledged 8,000 Total 54,000 Add: Collecltion 1/4 - 15/4/11 ($12,950-$950) 12,000 Total 66,000 USS: Receivable 3/31/08 40,000 26,000 Total sales 1/1 - 15/4/11 1,61,000 Uss: Gross profit (44%x$1,61,000) 70,840 90,160 Estimated merchandise inventory 70,840 Less: Sale of salvaged inventory 3,500 Inventory fire loss $67,340Related Questions
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