Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Question
Chapter 7, Problem 5P
1.
To determine
Estimate the amount of the inventory lost in the fire.
2.
To determine
Identify the reasons for which the management of the company might need to estimate the amount of inventory.
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The Sahara Company's inventory was partially destroyed on June 4, 2016, when its warehouse caught on fire early in the morning. Inventory that had a cost of $8,000 was saved. The accounting records, which were located in a fireproof vault, contained the following information:
Sales (1/1/16 through 6/3/16)
$260,000
Purchases (1/1/16 through 6/3/16)
190,000
Inventory (1/1/16)
40,000
Gross profit ratio
30% of cost
Using the gross profit method, what is the estimated cost of the inventory destroyed by the fire?
a.$40,000
b.$222,000
c.$38,000
d.$48,000
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
Southern Distributors, Incorporated, supplies ice cream shops with various toppings for
making sundaes. On November 17, 2024, a fire resulted in the loss of all of the toppings
stored in one section of the warehouse. The company must provide its insurance
company with an estimate of the amount of inventory lost. The following information is
available from the company's accounting records:
Inventory, January
1, 2024
Net purchases
through November 17
Net sales through
November 17
Historical gross
profit ratio
Ker
Fruit
Toppings
Fruit Marshmallow Chocolate
Toppings Toppings
Toppings
$
29,000
$ 7,900
$ 3,900
195,000
Marshmallow
Chocolate
245,000
15%
Estimated cost of lost
inventory
45,000
64,000
25%
1. Calculate the estimated cost of each of the toppings lost in the fire.
12,900
20,900
30%
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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- A fire destroyed the Churchhill Company's warehouse on March 15, 2014. Only goods with a normal selling price of $12,500 and a net realizable value of $5,000 were saved. The following information is available from the company's records : Inventory in warehouse, 01/01/2014 $250,000 Purchases 01/01/14- 03/15/14 $620,000 Purchase returns $9,500 Freight-in $14,000 $850,000 Sales, 01/01/13 - 03/15/14 Sales Return $20,000 For the period from 2009 - 2013, Churchill had a gross profit of $2,100,000 on net sales of $6,000,000. Estimate Churchill's inventory loss from the fire using the Gross Profit method.arrow_forwardMuller Computers stores its inventory in a warehouse that burned to the ground in late November, 2018. Their sales office was at a different location. In order to file a claim with their insurance, the owners ask you to estimate the inventory that was in the warehouse. The following information is available: Beginning inventory Purchases through November 30 Net sales revenue through November 30 $375,500 470,250 793,000 The company's gross profit has historically been 40% of net sales revenue. Estimate the value of the inventory destroyed in the fire using the gross profit method. a. $388,450 b. $410,000 c. $369,950 d. $528,550arrow_forwardOn September 22, 2016, a flood destroyed the entire merchandise inventory on hand in a warehouse owned by the Rocklin Sporting Goods Company. The following information is available from the records of the company's periodic inventory system: Inventory, January 1, 2016 Net purchases, January 1 through September 22 Net sales, January 1 through September 22 Gross profit ratio $140,000 370,000 550,000 25% Required: Estimate the cost of inventory destroyed in the flood using the gross profit method.arrow_forward
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