Exercise 9-16 Culver Company lost most of its inventory in a fire in December ju

Question

Exercise 9-16 Culver 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 79,500 Sales revenue $640,200 Purchases for the year402,500 Purchase returns Sales returns Rate of gross profit on net sales 25,800 31,500 20% Merchandise with a selling price of $21,200 remained undamaged after the fire. Damaged merchandise with an original selling price of $15,800 had a net realizable value of $5,700 Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage Amount of the loss

Explanation / Answer

Sales revenue = 640,200

Sales retuns = 25,800

Net sales = Sales - Sales retuns = 640,200 - 25,800 = 614,400

Gross profit on Sales = 20%

Hence, Cost of goods sold = 80%

Cost of goods sold =  614,400 * 80% = 491,520

Purchases for the year = 402,500

Purchase retuns = 31,500

Net purchases = 371,000

Beginning inventory plus net purchses less cost of goods sold should be the inventory on hand which is 179,500+371,000-491,520 = 58,980

Selling price of merchandise undamaged = 21,200

Cost of merchandise undamaged = 21,200*80% = 16,960

Loss of merchandise = 58,980 - 16,960 = 42,020

Amount of loss = Loss of merchandise - Net realizable value of the damaged merchandise

= 42,020 - 5,700 = 36,320.

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