FINANCIAL ACCT-CONNECT
8th Edition
ISBN: 9781266627903
Author: Wild
Publisher: INTER MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 5, Problem 22QS
Summary Introduction
Concept introduction:
The inventory is valued on lower of cost or market value. The word market represents the net realizable value of the inventory as on the date of the
To calculate: the cost of the inventory destroyed.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Estimating Inventory Loss Using Gross Profit Method
On November 15, a fire destroyed Youngstown Inc.'s warehouse where inventory is stored. It is estimated that $12,000 can be realized from sale of usable but damaged inventory. The accounting records
concerning inventory reveal the following. Gross profit averaged 35% of net sales.
Inventory at Nov. 1
Purchases from Nov. 1 to Nov. 15
Net sales from Nov. 1 to Nov. 15
$144,000
168,000
240,000
Required
a. Calculate the estimated loss of inventory using the gross profit method. $ 144,000
b. Assume instead that the markup is 25% of cost. Estimate the loss of inventory using the gross profit method. $ 120,000
X
Gross Profit Method: Estimation of Flood Loss
On November 21, 2016, a flood at Hodge Company's warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $9,100. The following information was available from Hodge's accounting records for
Product Tex:
Inventory at November 1, 2016
$102,000
Purchases from November 1, 2016, to date of flood
131,000
Net sales from November 1, 2016, to date of flood
213,000
Based on recent history, Hodge had a gross margin (profit) on Product Tex of 35% of net sales.
Required:
1. Prepare a schedule to calculate the estimated loss on the inventory in the flood, using the gross profit method.
HODGE COMPANY
Calculation of Estimated Loss on Inventory
in the Flood Using Gross Margin (Profit) Method
November 21, 2016
$
Estimated cost of goods sold
2. The gross profit method may not provide an accurate estimate of ending inventory when:
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.
Chapter 5 Solutions
FINANCIAL ACCT-CONNECT
Ch. 5 - Prob. 1DQCh. 5 - Prob. 2DQCh. 5 - Why are incidental costs sometimes ignored in...Ch. 5 - Prob. 4DQCh. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - Prob. 10DQ
Ch. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - Prob. 13DQCh. 5 - Prob. 14DQCh. 5 - Prob. 15DQCh. 5 - Prob. 16DQCh. 5 - Prob. 17DQCh. 5 - Prob. 1QSCh. 5 - Prob. 2QSCh. 5 - Prob. 3QSCh. 5 - Prob. 4QSCh. 5 - Prob. 6QSCh. 5 - Prob. 7QSCh. 5 - Prob. 8QSCh. 5 - Prob. 9QSCh. 5 - Prob. 10QSCh. 5 - Prob. 11QSCh. 5 - Refer to the information in QS 5-10 and assume the...Ch. 5 - Prob. 13QSCh. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Prob. 17QSCh. 5 - Identify the inventory costing method best...Ch. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - International accounting standards C1 C2 P2 Answer...Ch. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Laker Company reported following January purchases...Ch. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Inventory turnover and days sales in inventory A3...Ch. 5 - Periodic: Cost flow assumptions P1 Lopez Company...Ch. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Estimating ending inventory—gross profit method...Ch. 5 - Prob. 1PSACh. 5 - Prob. 2PSACh. 5 - Prob. 3PSACh. 5 - Prob. 5PSACh. 5 - Prob. 6PSACh. 5 - Prob. 7PSACh. 5 - QP Corp. sold 4,000 units of its product at $50...Ch. 5 - Prob. 9PSACh. 5 - Prob. 10PSACh. 5 - Prob. 1PSBCh. 5 - Prob. 2PSBCh. 5 - Prob. 3PSBCh. 5 - Prob. 4PSBCh. 5 - Prob. 5PSBCh. 5 - Prob. 6PSBCh. 5 - Prob. 7PSBCh. 5 - Prob. 8PSBCh. 5 - Prob. 9PSBCh. 5 - Prob. 10PSBCh. 5 - Santana Rey of Business Solutions is evaluating...Ch. 5 - Prob. 5.2SPCh. 5 - Prob. 2BTNCh. 5 - Golf Challenge Corp. is a retail sports store...Ch. 5 - Prob. 4BTNCh. 5 - Prob. 7BTNCh. 5 - Prob. 8BTNCh. 5 - Prob. 9BTN
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
- Knowledge Check 01 A company's warehouse was destroyed by a tornado on March 15. The only information that was salvaged is as follows: Inventory, January 1: $28,000 Purchases for the period 1/1 through 3/15: $15,000 Sales for the period 1/1 through 3/15: $50,000 Sales returns for the period 1/1 through 3/15: $300 Company's gross profit ratio: 20% Using the gross profit method, the estimated cost of inventory that was destroyed is $3,515 $9,940 O $35,000 O $3,240arrow_forwardHomework 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 worarrow_forwardCurrent Attempt in Progress Windsor Corporation's April 30 inventory was destroyed by fire. January 1 inventory was $154,200, and purchases for January through April totaled $525,400. Sales revenue for the same period was $687,900. Windsor's normal gross profit percentage is 30% on sales. Using the gross profit method, estimate Windsor's April 30 inventory that was destroyed by fire. Estimated ending inventory destroyed in fire $arrow_forward
- A fire destroys all of the merchandise of Assante Companyon February 10, 2017. Presented below is informationcompiled up to the date of the fire.Inventory, January 1, 2017 $ 400,000Sales revenue to February 10, 2017 1,950,000Purchases to February 10, 2017 1,140,000Freight-in to February 10, 2017 60,000Rate of gross profi t on selling price 40%What is the approximate inventory on February 10, 2017?arrow_forwardEffects of an Inventory Error The income statements for Graul Corporation for the 3 years ending in 2019 appear below. During 2019, Graul discovered that the 2017 ending inventory had been misstated due to the following two transactions being recorded incorrectly. a. A purchase return of inventory costing $42,000 was recorded twice. b. A credit purchase of inventory' made on December 20 for $28,500 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on December 22, 2017. Required: 1. Was ending inventory for 2017 overstated or understated? By how much? 2. Prepare correct income statements for all 3 years. 3. CONCEPTUAL CONNECTION Did the error in 2017 affect cumulative net income for the 3-year period? Explain your response. 4. CONCEPTUAL CONNECTION Why was the 2019 net income unaffected?arrow_forwardGross 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_forward
- Fill in the blanks The records of Summit Company revealed the following on November 18, 2016: Inventory, Jan. 1 Purchases, Jan. 1 to Nov. 18 Sales, Jan. 1 to Nov. 18 Purchase returns P100,000 1,114,000 1,150,000 40,000 Afire destroyed the inventory on November 18, 2016. The purchases include goods in transit purchased FOB shipping point and recorded at P20,000. The sales includes goods in transit sold FOB destination and recorded at P50,000. The cost of these goods is P35,000. The company maintains a gross profit rate that is the same for all goods sold Required: Compute the inventory fire loss. Parrow_forwardPROBLEM 17 On January 15, 2020, a strong monsoon hit the country and destroyed all the inventory of Aeirron Company stored in the warehouse. The following information is available from the records of the company's periodic inventory system: ww Beginning inventory Purchases, January1 to January 15, 2020 Sales, January 1 to January 15, 2020 P1,000.000 500,000 800,000 The following are the past performance of Aeirron Company: 2019 2018 Sales P4,500,000 P4,100,000 Cost of Sales 2,300,000 2,500,000 Requirements: 1. Compute the gross profit rate of the company for the pastyears. 2. Compute the inventory lost in monsoon.arrow_forwardCalculate estimated cost of ending inventory using the gross profit method: Gross profit on sales 40% Beg inventory Aug 1, 2017 $38,000 Net purchases $9,900 Net sales at retail for Aug $27,000 Estimated Costarrow_forward
- The following information is available for July for Aluminum Company. Beginning inventory Net purchases Net sales Percentage markup on cost $350,000 1,050,000 2,100,000 66.67% A fire destroyed Aluminum's July 31 inventory , leaving undamaged inventory with a cost of $21,000 . Using the gross profit method , the estimated ending inventory destroyed by fire is 539000 119000 700000 560000arrow_forwardCurrent Attempt in Progress Tamarisk Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation's books disclosed the following. Beginning inventory Purchases for the year Purchase returns Amount of the loss $ eTextbook and Media $166,700 375,300 28,900 Save for Later Sales revenue Sales returns Rate of gross profit on net sales Merchandise with a selling price of $22,400 remained undamaged after the fire. Damaged merchandise with an original selling price of $16,400 had a net realizable value of $4,800. Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage. $622,700 23,400 20 % Attempts: 0 of 3 used Submit Answerarrow_forwardCurrent Attempt in Progress Blossom Company reported cost of goods sold as follows. 2017 2016 Beginning inventory $32,380 $18,370 Cost of goods purchased 184,210 172,410 Cost of goods available for sale 216,590 190,780 Less: Ending inventory 39,050 32,380 Cost of goods sold $177,540 $158,400 Blossom Company made two errors: 1. 2016 ending inventory was overstated by $2,050. 2. 2017 ending inventory was understated by $5,300. Compute the correct cost of goods sold for each year. The correct cost of goods sold 2016 2017arrow_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 LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY
Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License