Martinez Company lost most of its inventory in a fire in December just before th

Question

Martinez 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 $30,500 remained undamaged after the fire, and damaged merchandise has a net realizable value of $7,500. The company does not carry fire insurance on its inventory.

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

Inventory (beginning) $ 81,100 Sales revenue $418,600 Purchases 286,900 Sales returns 21,200 Purchase returns 27,700 Gross profit % based on net selling price 38 %

Explanation / Answer

Particulars Calculation Amount ($) Beginning inventory Given 81,100 (At cost) Net Purchases $286,900-$27,700 259,200 (At cost) Goods available for sale 340,300 Net Sales ($418,600-21,200) x 62% -246,388 Ending inventory 93,912 less: Undamged merchandise $30,500 x 62 % 18,910 Net inventory damaged in Fire 75,002 Less: net ralised value of Damaged inventory 7,500 Amount of Inventory fire loss 67,502

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