Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 9: 16E (page 479)

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. Beginning inventory \(170,000 Sales revenue \)650,000 Purchases for the year 390,000 Sales returns 24,000 Purchase returns 30,000 Rate of gross profi t on net sales 40% Merchandise with a selling price of \(21,000 remained undamaged after the fire. Damaged merchandise with an original selling price of \)15,000 had a net realizable value of $5,300. Instructions Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage.

Short Answer

Expert verified

Inventory loss due to fire is $136,500.

Step by step solution

01

Calculation of cost of goods sold

Cost of goods sold is calculated as follows:

Costofgoodssold=Salesrevenue-Salesreturns×1-Grossprofitpercentage=$650,000-$24,000×1-40%=$375,600

02

Calculation of cost of undamaged inventory

Cost of undamaged inventory is calculated as follows:

Costofundamagedinventory=Sellingpriceofundamagedinventory×1-Grossprofitpercentage=$21,000×1-40%=$12,600

03

Calculation of inventory loss by fire

Inventory loss by fire is calculated as follows:

Inventorylossbyfire=Beginninginventory+Purchases-Purchasereturn-Costofgoodssold-Undamagedinventory-Realizablevalueofdamagedinventory=$170,000+$390,000-$30,000-$375,600-$12,600-$5,300=$136,500

Thus, inventory loss by fire equals $136,500.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

During 2017, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of \(59,850 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below. Type No. of Chairs Estimated Selling Price Each Lounge chairs 400 \)90 Armchairs 300 80 Straight chairs 700 50 During 2017, Pretenders sells 200 lounge chairs, 100 armchairs, and 120 straight chairs. Instructions What is the amount of gross profit realized during 2017? What is the amount of inventory of unsold straight chairs on December 31, 2017?

John Olerud Ltd., a local retailing concern in the Bronx, New York, has decided to change from the conventional retail inventory method to the LIFO retail method starting on January 1, 2018. The company recomputed its ending inventory for 2017 in accordance with the procedures necessary to switch to LIFO retail. The inventory computed was \(212,600. Instructions Assuming that John Olerud Ltd.’s ending inventory for 2017 under the conventional retail inventory method was \)205,000, prepare the appropriate journal entry on January 1, 2018.

Use the information for Boyne Inc. from BE9-10, and assume the price level increased from 100 at the beginning of the year to 115 at year-end. Compute ending inventory at cost using the dollar-value LIFO retail method

Saurez Company, your client, manufactures paint. The company’s president, Maria Saurez, has decided to open a retail store to sell Saurez paint as well as wallpaper and other supplies that would be purchased from other suppliers. She has asked you for information about the conventional retail method of pricing inventories at the retail store. Instructions Prepare a report to the president explaining the retail method of pricing inventories. Your report should include the following points. (a) Description and accounting features of the method. (b) The conditions that may distort the results under the method. (c) A comparison of the advantages of using the retail method with those of using cost methods of inventory pricing. (d) The accounting theory underlying the treatment of net markdowns and net markups under the method.

Question:Amiras Corporation began operations on January 1, 2017, with a beginning inventory of \(30,100 at cost and \)50,000 at retail. The following information relates to 2017. Retail Net purchases (\(108,500 at cost) \)150,000 Net markups 10,000 Net markdowns 5,000 Sales revenue 126,900 Instructions (a) Assume Amiras decided to adopt the conventional retail method. Compute the ending inventory to be reported in the balance sheet. (b) Assume instead that Amiras decides to adopt the dollar-value LIFO retail method. The appropriate price indexes are 100 at January 1 and 110 at December 31. Compute the ending inventory to be reported in the balance sheet. (c) On the basis of the information in part (b), compute cost of goods sold.
See all solutions

Recommended explanations on Business Studies Textbooks

Business Case Studies

Read Explanation

Business Development

Read Explanation

Intermediate Accounting

Read Explanation

Human Resources

Read Explanation

Change Management

Read Explanation

Strategic Analysis

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free