Eastman Company lost most of its inventory in a fire in December just before the

Question

Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following.

Merchandise with a selling price of $34,500 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,730. The company does not carry fire insurance on its inventory.

Compute the amount of inventory fire loss. (Do not use the retail inventory method.)

Inventory (beginning) $ 81,500 Sales revenue $426,300 Purchases 346,700 Sales returns 23,700 Purchase returns 36,200 Gross profit % based on net selling price 34 %

Explanation / Answer

Amount of inventory fire loss = 8730 x (1 - 0.34) = $5761.8 or round off $5762

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