The inventory of Hang Company was destroyed by fire on March 1. From an examinat

Question

The inventory of Hang Company was destroyed by fire on March 1. From an examination of the accounting records, the following data for the first 2 months of the year are obtained: Sales Revenue $52,200, Sales Returns and Allowances $1,500, Purchases $34,800, Freight-In $1,200, and Purchase Returns and Allowances $1,800.

Determine the merchandise lost by fire, assuming:

A beginning inventory of $24,100 and a gross profit rate of 40% on net sales.

Estimated cost of merchandise lost _____

A beginning inventory of $38,700 and a gross profit rate of 31% on net sales. Estimated cost of merchandise lost _____

Explanation / Answer

a.

b.

To beginning inventory 24100 By net sales(52200-1500) 50700 To net purchases(34800-1800) 33000 By estimated inventory lost(balance) 27880 To freight in 1200 To gross profit(50700*0.4) $20280 Total $78580 Total $78580

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