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18 April, 01:25

The inventory of Cullumber Company was destroyed by fire on March 1. From an examination of the accounting records, the following data for the first 2 months of the year are obtained:

Sales Revenue $51,000.

Sales Returns and Allowances $1,100.

Purchases $31,000.

Freight-In $1,200, and Purchase Returns and Allowances $1,500.

Required:

Determine the merchandise lost by fire, assuming:

1. A beginning inventory of $20,000 and a gross profit rate of 40% on net sales.

2. A beginning inventory of $30,000 and a gross profit rate of 30% on net sales.

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Answers (1)
  1. 18 April, 01:39
    0
    a. Merchandise lost by fire value = $20,760

    b. Merchandise lost by fire value = $25,770

    Explanation:

    Net sales = $51,000 - $1,100

    = $49,900

    Net purchase cost = $31,000 + 1,200 - $1,500

    = $30,700

    a. Gross profit = $49,900 * 40%

    = $19,960

    Cost of goods sold = $49,900 - $19,960

    = $29,940

    Cost of goods sold = beginning inventory + Purchases - ending inventory

    = $29,940 = $20,000 + $30,700 - ending inventory

    Ending inventory = $20,760

    Merchandise lost by fire value = $20,760

    b. Gross profit = $49,900 * 30%

    = $14,970

    Cost of goods sold = $49,900 - $14,970

    = $34,930

    Cost of goods sold = beginning inventory + Purchases - ending inventory

    = $34,930 = $30,000 + $30,700 - ending inventory

    ending inventory = $25,770

    Merchandise lost by fire value = $25,770
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