Question 5 The Andrew Company incurred a fire at one of its plants. You have bee

Question

Question 5 The Andrew Company incurred a fire at one of its plants. You have been hired by the insurance company to determine the amount of the inventory loss. You ascertain the following from the company books: 1,300,000 Beginning Inventory $340,000 Purchases for the Year $900,000 Purchase Returns Rate of Gross Profit on Sales 30% Sales Sales Returns $ 48,000 S 60,000 Merchandise with a selling price of $40,000 remained undamaged. Required Compute the amount of loss as a result of the fire before any insurance proceeds are to be applied.

Explanation / Answer

Calculate amount of loss as a result of the fire :

Beginning inventory 340000 Purchase 900000 Less: Purchase return (60000) Net purchase 840000 Total goods available for sale 1180000 Less: Cost of goods sold Sales 1300000 Less: Sales returns (48000) Net sales 1252000 Less: Gross profit @30% (375600) (876400) Inventory on the date of fire 303600 Less: Undamaged goods (40000*70%) (28000) Loss from the fire 275600

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