David Patel was at home when he received a call from the fire department telling him his store had burned. His business was a total loss. The insurance company asked him to prove his inventory loss. For the year, until the date of the fire, Patel's company had sales of $450,000 and purchases of $280,000. Freight-in amounted to $13,700, and beginning inventory was $45,000. Patel always priced his goods to achieve a gross margin of 40 percent. Compute patel's estimated inventory loss.

David Patel was at home when he received a call from the fire department telling him his store had burned. His business was a total loss. The insurance company asked him to prove his inventory loss. For the year, until the date of the fire, Patel's company had sales of $450,000 and purchases of $280,000. Freight-in amounted to $13,700, and beginning inventory was $45,000. Patel always priced his goods to achieve a gross margin of 40 percent. Compute patel's estimated inventory loss.

Business Its Legal Ethical & Global Environment

10th Edition

ISBN:9781305224414

Author:JENNINGS

Publisher:JENNINGS

Chapter8: Business Crime

Section: Chapter Questions

Problem 6QAP

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Del Rio began Rio Enterprises on January 1 with 200 units of inventory. During the year, 500 additional units were purchased, 500 units were sold, and Del ended the year with 200 units. Del is very satisfied with his first year of business although the cost of replacing his inventory rose continually throughout the year. The 500 units sold for a total of 320,000 and the 500 units purchased to replace them cost 256,000, so his cash account has increased by 64,000. Del is concerned however because he has three obligations yet to meet: taxes, dividends, and his wife. Federal and state income taxes will take 40% of his income. His investors are to receive dividends equal to half of any income after taxes are paid. And finally, Del promised his wife a big trip to Hawaii if she let him quit his job as a professor and start his own business. He promised her hed make at least 50,000 after taxes. That will give us 25,000 after paying off the investors. Del kept fairly good records during the year and knows the specific cost of each inventory unit sold. He has prepared the following table to summarize his purchases and sales. Reset the purchase prices to their original values (cells C11 through C14). Suppose Del had purchased 250 units on November 20 rather than 150. Enter 250 in cell C14 and alter column G in the Data Section. Explain what happens to net income under each inventory cost flow assumption and why. Also, what management implications might this have for Del?
Del Rio began Rio Enterprises on January 1 with 200 units of inventory. During the year, 500 additional units were purchased, 500 units were sold, and Del ended the year with 200 units. Del is very satisfied with his first year of business although the cost of replacing his inventory rose continually throughout the year. The 500 units sold for a total of 320,000 and the 500 units purchased to replace them cost 256,000, so his cash account has increased by 64,000. Del is concerned however because he has three obligations yet to meet: taxes, dividends, and his wife. Federal and state income taxes will take 40% of his income. His investors are to receive dividends equal to half of any income after taxes are paid. And finally, Del promised his wife a big trip to Hawaii if she let him quit his job as a professor and start his own business. He promised her hed make at least 50,000 after taxes. That will give us 25,000 after paying off the investors. Del kept fairly good records during the year and knows the specific cost of each inventory unit sold. He has prepared the following table to summarize his purchases and sales. Using a pencil, fill in columns F and G in the Data Section of the worksheet printout at the end of this problem.
Del Rio began Rio Enterprises on January 1 with 200 units of inventory. During the year, 500 additional units were purchased, 500 units were sold, and Del ended the year with 200 units. Del is very satisfied with his first year of business although the cost of replacing his inventory rose continually throughout the year. The 500 units sold for a total of 320,000 and the 500 units purchased to replace them cost 256,000, so his cash account has increased by 64,000. Del is concerned however because he has three obligations yet to meet: taxes, dividends, and his wife. Federal and state income taxes will take 40% of his income. His investors are to receive dividends equal to half of any income after taxes are paid. And finally, Del promised his wife a big trip to Hawaii if she let him quit his job as a professor and start his own business. He promised her hed make at least 50,000 after taxes. That will give us 25,000 after paying off the investors. Del kept fairly good records during the year and knows the specific cost of each inventory unit sold. He has prepared the following table to summarize his purchases and sales. Del has heard that the choice of an inventory cost flow assumption can have a significant effect on net income and taxes. He asks you to show him the differences between the specific identification method and the cost flow assumptions of FIFO, LIFO, and weighted average methods. Review the worksheet FIFOLIFO that follows these requirements. Note that all of the problem data have been entered in the Data Section of the worksheet.
Del Rio began Rio Enterprises on January 1 with 200 units of inventory. During the year, 500 additional units were purchased, 500 units were sold, and Del ended the year with 200 units. Del is very satisfied with his first year of business although the cost of replacing his inventory rose continually throughout the year. The 500 units sold for a total of 320,000 and the 500 units purchased to replace them cost 256,000, so his cash account has increased by 64,000. Del is concerned however because he has three obligations yet to meet: taxes, dividends, and his wife. Federal and state income taxes will take 40% of his income. His investors are to receive dividends equal to half of any income after taxes are paid. And finally, Del promised his wife a big trip to Hawaii if she let him quit his job as a professor and start his own business. He promised her hed make at least 50,000 after taxes. That will give us 25,000 after paying off the investors. Del kept fairly good records during the year and knows the specific cost of each inventory unit sold. He has prepared the following table to summarize his purchases and sales. Examine your completed worksheet and answer the following questions: a. Which inventory cost flow assumption produces the most net income? b. Which inventory cost flow assumption produces the least net income? c. What caused the difference between your answers to a and b? d. Which inventory cost flow assumption produces the highest ending cash balance? e. Which inventory cost flow assumption produces the lowest ending cash balance? f. Does the assumption that produces the highest net income also produce the highest cash balance? Explain. g. As you recall, Del originally used the specific identification method in his initial calculations when he projected 51,600 net income. According to Dels reckoning, that should have left him cash of 25,800 (50% of 51,600) after paying his investors. Why would he only have 3,800 left? Explain. h. Which inventory cost flow assumption would you suggest Del use? Explain.
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Allegiance, Inc. has $125,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $45,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $23,000. There the goods could be sold for $80,000. What alternative is more desirable and what is the relevant cost for that alternative?
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The Carlson Department Store suffered heavy damage when a hurricane struck on August 31, 2013. The store was closed for four months (Sept – Dec 2013) and Carlson is now involved in a dispute with its insurance company concerning the amount of lost sales during the time the store was closed. Two key issues must be resolved: The amount of sales Carlson would have made if the hurricane had not struck; and Whether Carlson is entitled to any compensation for excess sales from increased business activity after the storm More than $8 billion in federal disaster relief and insurance money came into the county, resulting in increased sales at department stores and numerous other businesses. The table below shows the sales data for the 48 months preceding the storm. The following table reports total sales for the 48 months preceding the storm for all department stores in the county, as well as the total sales in the county for the four months the Carlson Department Store was closed. Management…