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

Question

Stellar 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 $18,900 remained undamaged after the fire. Damaged merchandise with an original selling price of $14,100 had a net realizable value of $5,200.

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

Beginning inventory $171,400 Sales revenue $695,100 Purchases for the year 390,000 Sales returns 22,800 Purchase returns 30,400 Rate of gross profit on net sales 30 %

Explanation / Answer

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

Beginning inventory 171400 Purchase for the year 390000 Less: Purchase returns (30400) Cost of goods available 531000 Less: Cost of goods sold (695100-22800)70% (470610) Ending inventory at the time of fire 60390 Less: Undamange merchandise (18900*70%) (at cost) (13230) Damage merchandise (at cost) 47160 Less; Net realizable value (5200) Amount of loss 41960

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