FINANCIAL ACCT.FUND.(LOOSELEAF)
7th Edition
ISBN: 9781260482867
Author: Wild
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 5, Problem 22QS
To determine
Inventory:
Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.
The cost of the inventory destroyed by fire.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Homework
Beginning inventory, January 1
January 1 through September 5 purchases (net)
January 1 through September 5 sales (net)
Current year's estimated gross profit rate
Estimate the cost of the inventory destroyed.
Beginning inventory
Net cost of goods purchased
Cost of goods available for sale
Estimated cost of goods sold
Estimated September 5 inventory destroyed
$
Saved
Confucius Bookstore's inventory is destroyed by a fire on September 5. The following data for the current year are available
from the accounting records.
$
190,000
352,000
542,000
Image result for cur...
< Prev 5 of 7
190,000
$352,000
$ 685,000
44%
Help Save & Exit Sub
Next
Check my wor
Gross Profit Method
The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:
Jan. 1
Merchandise inventory
$350,000
Jan. 1-Dec. 31
Purchases (net)
2,950,000
Sales (net)
4.440,000
Estimated gross profit rate
35%
a. Estimate the cost of the merchandise destroyed.
Cost of the Merchandise Destroyed
$
$
b. Briefly describe the situations in which the gross profit method is useful.
1. The gross profit method is useful for estimating inventories for monthly or quarterly financial statements.
2. It is useful in estimating the cost of merchandise destroyed by fire or other disasters.
3. It is useful in reducing the carrying cost of inventory.
4. It is useful in achieving a higher net income.
Gross Profit Method
The inventory was destroyed by fire on December 31. The following data were obtained from the accounting records:
Jan. 1
Inventory
$350,000
Jan. 1 - Dec. 31
Purchases (net)
2,950,000
Sales
4,440,000
Estimated gross profit rate
35%
a. Estimate the cost of the inventory destroyed.
Estimated Cost of Merchandise Destroyed
$
$
$
$
b. Which method is used to estimate inventory cost in case of inventory destroyed by fire?
Chapter 5 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
Ch. 5 - Use the following information from Marvel Company...Ch. 5 - Use the following information from marvel company...Ch. 5 - Use the following information from Marvel Company...Ch. 5 - Use the following information from Marvel company...Ch. 5 - Periodic: A company reports the following...Ch. 5 - Prob. 6MCQCh. 5 - Prob. 1DQCh. 5 - Prob. 2DQCh. 5 - Prob. 3DQCh. 5 - Prob. 4DQ
Ch. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - Prob. 10DQCh. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - Prob. 1QSCh. 5 - Prob. 2QSCh. 5 - Prob. 3QSCh. 5 - Prob. 4QSCh. 5 - Prob. 5QSCh. 5 - Prob. 6QSCh. 5 - Prob. 7QSCh. 5 - Prob. 8QSCh. 5 - Prob. 9QSCh. 5 - Prob. 10QSCh. 5 - Prob. 11QSCh. 5 - Prob. 12QSCh. 5 - Prob. 13QSCh. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Prob. 17QSCh. 5 - Prob. 18QSCh. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - Prob. 23QSCh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19ECh. 5 - Perpetual: Alternative cost flows P1 Warnerwoods...Ch. 5 - Periodic: Alternative cost flows P3 Refer to the...Ch. 5 - Perpetual: Alternative cost flows P1 Montoure...Ch. 5 - Prob. 4PSACh. 5 - Prob. 5PSACh. 5 - Analysis of inventory errors A2 Navajo Company’s...Ch. 5 - Prob. 7PSACh. 5 - Periodic: Income comparisons and cost flows A1P3...Ch. 5 - Prob. 9PSACh. 5 - Prob. 10PSACh. 5 - Prob. 1PSBCh. 5 - Prob. 2PSBCh. 5 - Prob. 3PSBCh. 5 - Prob. 4PSBCh. 5 - Lower of cost or market P2 A physical inventory of...Ch. 5 - Analysis of inventory errors A2 Hallam Company’s...Ch. 5 - Prob. 7PSBCh. 5 - Periodic: Income comparisons and cost flows A1P3...Ch. 5 - Prob. 9PSBCh. 5 - Prob. 10PSBCh. 5 - Prob. 5SPCh. 5 - Prob. 1AACh. 5 - Prob. 2AACh. 5 - Prob. 3AACh. 5 - Prob. 1BTNCh. 5 - Prob. 2BTNCh. 5 - Prob. 3BTNCh. 5 - Prob. 4BTNCh. 5 - Prob. 5BTNCh. 5 - Visit four retail stores with another classmate....
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Gross Profit Method: Estimation of Theft Loss You are requested by a client on September 28 to prepare an insurance claim for a theft loss that occurred on that day. You immediately take an inventory and obtain the following data: The inventory on September 28 indicates that an inventory of 15,000 remains after the theft. During the past year, net sales were made at 50% above the cost of goods sold. Required: 1. Compute the inventory lost during the theft. Round the gross profit percentage to 3 decimal places. 2. Next Level What concerns might you have about the inventory estimation under the gross profit method?arrow_forwardces QS 5-26B (Algo) Estimating inventories-gross profit method LO P4 Confucius Bookstore's inventory is destroyed by a fire on September 5. The following data for the current year are available from the accounting records. Beginning inventory, January 1 January 1 through September 5 purchases (net). January 1 through September 5 sales (net) Current year's estimated gross profit rate Estimate the cost of the inventory destroyed. Beginning inventory Net cost of goods purchased Cost of goods available for sale Estimated cost of goods sold Estimated September 5 inventory destroyed $ $ 230,000 230,000 $ 230,000 $ 342,000 $ 684,000arrow_forwardQS 5-26B (Algo) Estimating inventories-gross profit method LO P4 Confucius Bookstore's inventory is destroyed by a fire on September 5. The following data for the current year are available from the accounting records. Beginning inventory, January 1 January 1 through September 5 purchases (net) January 1 through September 5 sales (net) Current year's estimated gross profit rate Estimate the cost of the inventory destroyed. X Answer is not complete. Beginning inventory Net cost of goods purchased Cost of goods available for sale Sales Estimated September 5 inventory destroyed $ $ 220,000 319,000 539,000 638,000 $ 220,000 $ 319,000 $ 638,000 31%arrow_forward
- QS 5-26B (Algo) Estimating inventories-gross profit method LO P4 Confucius Bookstore's inventory is destroyed by a fire on September 5. The following data for the current year are available from the accounting records. Beginning inventory, January 1 January 1 through September 5 purchases (net) January 1 through September 5 sales (net) Current year's estimated gross profit rate Estimate the cost of the inventory destroyed. Beginning inventory Estimated September 5 inventory destroyed $ $ 170,000 170,000 $ 170,000 $360,000 $ 720,000 42%arrow_forwardCurrent Attempt in Progress Blossom Company reported the following information for November and December 2022. November December Cost of goods purchased $535.000 $ 603,000 Inventory, beginning-of-month 129,000 116,050 Inventory, end-of-month 116.050 Sales revenue 843.000 1.000.000 Blossom's ending inventory at December 31 was destroyed in a fire. (a) X Your answer is incorrect Compute the gross profit rate for November. Gross profitrate 36.5arrow_forwardProblems Problem 1 Gross Margin Method: Inventory Burned, Indemnity. Word Wholesale Company's warehouse burned on April 1, 20X5. The following information (up to the date of the fire) was taken from the records of the company; inventory, January 1, P30,0003; gross sales, P160,000; purchases, P90,000%3; sales returns (restored to stock), P5,000; purchase returns and allowances, P2,000; and freight-in, P8,000. The cost of goods sold and gross margin for the past three years were: Cost of Goods Sold P500,000 460,000 500,000 Gross Margin P125,000 120,000 120,000 Year 20X2 20X3 20X4 Required: 1. Estimate the cost of the inventory destroyed in the fire. 2. Under what conditions would your response to (1) above be questionable? 3. The insurance company pays indemnity on market value at the date of the fire. What amount would you recommend that Word submit as an insurance claim? Explain.arrow_forward
- PROBLEM 19: San Juan Manufacturing began operations 5 years ago. On August 13, 2021, a fire broke out in the warehouse destroying all inventory and many records relating to the inventory. The information available is presented below (all sales and purchases are on account): 1/1/2021 P 143,850 130,590 88,140 8/13/2021 Inventory Accounts receivable Accounts payable Collections on accounts P 128,890 122,850 receivable, 1/1 to 8/13 753,800 Payments to suppliers, 1/1 to 8/13 Goods out on consignment at 8/13 at cost 487,500 52,900 Summary on previous years' sales follows: 2019 P 626,000 P705,000 P 680,000 225,600 2018 2020 Sales Gross profit 187,800 231,200 24. What is the inventory loss suffered as a result of the fire if the average gross profit rate is used? 25. What is the inventory loss suffered as a result of the fire if the trend in gross profit rate continues?arrow_forwardBlossom Company reported the following information for November and December 2022. November December Cost of goods purchased $535,000 $ 603.000 Inventory, beginning-of-month 129.000 116.050 Inventory, end-of-month 116.050 Sales revenue 843.000 1.000.000 Blossom's ending inventory at December 31 was destroyed in a fire. (a) Compute the gross profit rate for November. Gross profit ratearrow_forwardPROBLEM 16: On May 6, 2023, a flashflood caused damage to the merchandise stored in the warehouse of Rome Company. You were asked to submit an estimate of the merchandise destroyed in the warehouse. The following data were established: A. Net sales for 2022 were P800,000 matched against cost of P560,000. B. Merchandise inventory, January 1, 2023 was P200,000, 90% of which was in the warehouse and 10% in the downtown showrooms. C. For January 1, 2023 to date of flood, you ascertained that the invoice value of purchases, all of which were stored in the warehouse, P100,000; freight inward, P4,000; purchases returned, P6,000. D. Cost of merchandise transferred from the warehouse to showrooms was P8,000 and net sales from January 1 to May 6, 2023, all of which were warehouse stock, were P320,000. E. There was no change in the gross profit rate adopted by the company in 2023. 21. What is the estimated merchandise destroyed by the flood?arrow_forward
- AUDITING PROBLEM - AUDIT OF INVENTORIES PROBLEM #4 2. Using the gross profit test, what was the estimated loss in inventory due to the fire assuming that the gross profit rate is 25% based on cost?arrow_forwardPROBLEM 16: On May 6, 2023, a flashflood caused damage to the merchandise stored in the warehouse of Rome Company. You were asked to submit an estimate of the merchandise destroyed in the warehouse. The following data were established: A. Net sales for 2022 were P800,000 matched against cost of P560,000. B. Merchandise inventory, January 1, 2023 was P200,000, 90% of which was in the warehouse and 10% in the downtown showrooms. C. For January 1, 2023 to date of flood, you ascertained that the invoice value of purchases, all of which were stored in the warehouse, P100,000; freight inward, P4,000; purchases retumed, P6,000. D. Cost of merchandise transferred from the warehouse to showrooms was P8,000 and net sales from January 1 to May 6. 2023, all of which were warehouse stock, were P320,000. E. There was no change in the gross profit rate adopted by the company in 2023. 21. What is the estimated merchandise destroyed by the flood? PROBLEM 17: The following information relates to NNN ,…arrow_forwardCurrent Attempt in Progress Pearl Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber Millwork Hardware and fittings 25% 30% 40% On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction. Inventory Inventory, Jan. 1, 2025 Purchases to Aug. 18, 2025 Sales revenue to Aug. 18, 2025 Lumber Lumber $250,900 1,492,000 2,120,000 Millwork LA $90,000 370,600 540,800 Hardware Submit your estimate of the inventory amounts immediately preceding the fire. (Round ratios for computational purposes to 5 decimal places,…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage