Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Textbook Question
Chapter 7, Problem 10AP
Zubac Company is a large retail furniture company that operates in two adjacent warehouses. One warehouse is a showroom, and the other is used to store merchandise. On the night of April 22, 2014, a fire broke out in the storage warehouse and destroyed the merchandise stored there. Fortunately, the fire did not reach the showroom, so all the merchandise on display was saved.
Although the company maintained a perpetual inventory system, its records were rather haphazard, and the last reliable physical inventory had been taken on December 31. In addition, there was no control of the flow of goods between the showroom and the warehouse. Thus, it was impossible to tell what goods should have been in either place. As a result, the insurance company required an independent estimate of the amount of loss. The insurance company examiners were satisfied when they received the following information:
REQUIRED
- 1. Prepare a schedule that estimates the amount of the inventory lost in the fire.
- 2. ACCOUNTING CONNECTION ▶ What are some other reasons management might need to estimate the amount of inventory?
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Brad Essary owned a small company that sold garden equipment. The equipment was expensive, and a perpetual system was
maintained for control purposes. Even so, lost, damaged, and stolen merchandise normally amounted to 5 percent of the inventory
balance. On June 14, Essary's warehouse was destroyed by fire. Just prior to the fire, the accounting records contained a $154,500
balance in the Inventory account. However, inventory costing $11,100 had been sold and delivered to customers but had not been
recorded in the books at the time of the fire. The fire did not affect the showroom, which contained inventory that cost $41,200.
Required
Estimate the amount of inventory destroyed by fire.
Inventory destroyed by fire
The Star Company's inventory was partially destroyed on July 4, 2004, when its warehouse caught on fire early in the morning. Inventory that had a cost of $8,500 was saved. The accounting records, which were located in a fireproof vault, contained the following information.
Sales (1/1/04 through 7/3/04)
$225,000
Purchases (1/1704 through 7/3/04)
180,000
Inventory (1/1/04)
45,000
Gross Profit Ratio
25% of cost
Using the gross profit method, what is the estimated cost of the inventory destroyed by the fire?
a. $17,500b. $25,000c. $30,000d. $36,500
Late on the night of August 30, 2021, an arsonist destroyed the FAITHFUL
Inc's warehouse which was full of inventory. The accounting records were
stored in another facility and not destroyed in the fire. The company is in the
process of filing a claim with its insurance company for the inventory loss due
to the fire.
Beginning inventory
P350,500
Purchases through August 30, 2021
470,250
Net sales revenue through August 30, 2021
745,200
The gross profit percent has historically been 40% of net sales revenue.
Estimate the value of the inventory destroyed in the fire using the gross
profit method.
Chapter 7 Solutions
Principles of Accounting
Ch. 7 - Prob. 1DQCh. 7 - Which of the following methods do not require a...Ch. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 1SECh. 7 - Assume the following data with regard to inventory...Ch. 7 - Prob. 3SE
Ch. 7 - Prob. 4SECh. 7 - Prob. 5SECh. 7 - Prob. 6SECh. 7 - Prob. 7SECh. 7 - Prob. 8SECh. 7 - Prob. 9SECh. 7 - Prob. 10SECh. 7 - Prob. 11SECh. 7 - Prob. 12SECh. 7 - Prob. 1EACh. 7 - Prob. 2EACh. 7 - Prob. 3EACh. 7 - Prob. 4EACh. 7 - Prob. 5EACh. 7 - Prob. 6EACh. 7 - During July 2014, Micanopy, Inc., sold 500 units...Ch. 7 - Prob. 8EACh. 7 - Prob. 9EACh. 7 - Prob. 10EACh. 7 - Prob. 11EACh. 7 - Prob. 12EACh. 7 - Midori Company merchandises a single product...Ch. 7 - The inventory of Wood4Fun and data on purchases...Ch. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6APCh. 7 - DiPaolos inventory, purchases, and sales for March...Ch. 7 - Prob. 8APCh. 7 - Prob. 9APCh. 7 - Zubac Company is a large retail furniture company...Ch. 7 - Prob. 1CCh. 7 - Prob. 2CCh. 7 - ExxonMobil Corporation had net income of 41.0...Ch. 7 - Prob. 4CCh. 7 - JCPenney, a large retail company with many stores,...
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