Rasheed Wallace Company lost most of its inventory in a fire in December just be

Question

Rasheed Wallace 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 dollar 23,060 remained undamaged after the fire. Damaged merchandise with an original selling price of dollar 15,990 had a net realizable value of dollar 6,400. Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage. Amount of the loss dollar

Explanation / Answer

Here first of all we will calculate the value of ending inventory and then calculate the amount of loss.

Ending inventory=Beginning inventory+ Purchases-Cost of goods sold

Beginning inventory=188600

Net purchases=Purchase-Purchase returns=469000-34400=434600

Net sales=Sales-Sales return=670400-26690=643710

Gross profit on net sales=20%

Cost of goods sold=Sales-Profit

Profit=20% of 643710=128742

Cost of goods sold=643710-128742=514968

Ending inventory=188600+434600-514968

Ending inventory=108232

Out of this, inventory worth 23060 was not affected.

Cost of damaged inventory=Ending inventory-unaffected inventory=108232-23060=85172

Out of this loss,inventory worth selling price 15998 had a net realizable value worth 6400

Hence ,the loss due to fire gets reduced by 15998-6400=9598

Loss due to fire=85172-9598=75574

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