12. Cougar Corp . requires an estimate of the cost of goods lost by fire on May

Question

12. Cougar Corp . requires an estimate of the cost of goods lost by fire on May 15 th . Merchandise on hand on January 1 was $ 41 ,000. Purchases since January 1 were $ 11 2,000. Freight paid on these inventory purchases is $5,100. The company also returned inventory that originally cost $3,400 (the retail price for the returned inventory is $5,800 ) . Sales, which are made at 50% above cost, totaled $213,000 through May 15 th . Goods costing $6,900 were left undamaged by the fire (the remaining goods were destroyed).

1. Compute the cost of goods destroyed by the fire using the gross profit inventory method.

Explanation / Answer

Answer:

Computation of cost of goods destroyed by fire:

Trading Account of Cougar Corp for the period ended May 15th

Cost of goods lost by fire (balancing figure)

Therefore, it is clear from the above account that the cost of goods lost by fire was $ 41,300.

$ $ Opening Inventory 41,000 Sales 213,000 Net purchases 108,600

Cost of goods lost by fire (balancing figure)

41,300 Freight 5,100 Gross Profit (50% of sales) 106,500 Closing Inventory 6,900 261,200 261,200

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