Rasheed Wallace Company lost most of its inventory in a fire in December just be

Question

Rasheed Wallace Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation’s books disclosed the following.

Merchandise with a selling price of $23,900 remained undamaged after the fire. Damaged merchandise with an original selling price of $13,890 had a net realizable value of $6,800.

Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage.

Beginning inventory $185,300 Sales revenue $657,100 Purchases for the year 455,000 Sales returns 27,460 Purchase returns 30,500 Rate of gross profit on net sales 30 %

Explanation / Answer

Sales Revenue 657100 Sales returns 27460 Net Sales 629640 Gross profit on net sales 30% Gross profit = 30 * 629640/100 = 188892 Cost of goods sold = Net sales - Gross profit                                        = 629640 - 188892                                         = 440748 Closing stock = beginning inventory + Purchases - Purchase returns -Cost of goods sold                             = 185300 + 455000 - 30500 - 440748                             = 169052 Cost of goods sold of undamaged goods = 23900 *70/100 = 16730 Damaged goods = closing stock - cost of undamaged goods                                   = 169052 - 16730                                    = 152322 Cost of 13890 goods = 13890 * 70/100 = 11123 Net realizable value 6800 Loss 4323 Balance goods destroyed completely = 152322 - 11123 = 141199 Hence, total loss = 4323 + 141199   = 145522

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