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

ID: 2524371 • Letter: V

Question

Vaughn 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.

Beginning inventory$162,800Sales revenue$712,400Purchases for the year353,000Sales returns22,600Purchase returns30,300Rate of gross profit on net sales40%
Merchandise with a selling price of $21,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $13,900 had a net realizable value of $5,300.

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

Explanation / Answer

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

Beginning inventory 162800 Purchase 353000 Less: Purchase return -30300 Net purchase 322700 Cost of goods available for sale 485500 Sales 712400 Less: Sales return -22600 Net sales 689800 Less: Gross profit -275920 Cost of goods sold -413880 Ending inventory 71620 Undamaged merchandise on cost (21000*60%) -12600 Damaged merchandise cost 59020 Less: Net realizable value -5300 Amount of the loss as result of fire 53720