Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Question
Chapter 6, Problem 24E
(a)
To determine
Estimate the cost of merchandise destroyed.
(b)
To determine
Describe the situations whereby gross profit method is useful.
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Gross Profit Method
The inventory was destroyed by fire on December 31. The following data were obtained from the accounting records:
Jan. 1
Inventory
$350,000
Jan. 1 - Dec. 31
Purchases (net)
2,950,000
Sales
4,440,000
Estimated gross profit rate
35%
a. Estimate the cost of the inventory destroyed.
Estimated Cost of Merchandise Destroyed
$
$
$
$
b. Which method is used to estimate inventory cost in case of inventory destroyed by fire?
1. On which of the following instances is cost estimation not permitted?
A. Estimating the cost of inventory destroyed by fire or other natural calamities.
B. Presenting the value of inventory in an interim financial statement.
C. Reporting of inventory at the Statement of Financial Position at year-end.
D. Estimating the value of inventory missing because of theft.
2. Under the gross profit method, if the gross profit rate is based on cost, the cost of sales is computed as
A. Gross sales times cost ratio
B. Net sales divided by sales ratio
C. Net sales times cost ratio
D. Gross sales divided by sales ratio
3. In computing cost ratio, the conservative/conventional retail method should
A. Exclude mark-up but not markdown
B. Include mark-up and markdown
C. Exclude mark-up and markdown
D. Include mark-up but not markdown
A fire on 28th Feb destroyed some of a company’s inventory and its inventory records. The following information is available:- Inventory at 1st Feb= 3,180- Sales for Feb= 6,120- Purchases for Feb =4,120- Inventory in good condition at 28th Feb= 2,140The standard gross profit percentage on sales is 35%.Based on this information, what is the value of the inventory lost?
Chapter 6 Solutions
Financial And Managerial Accounting
Ch. 6 - Before inventory purchases are recorded, the...Ch. 6 - Why is it important to take a physical inventory...Ch. 6 - Prob. 3DQCh. 6 - If inventory is being valued at cost and the price...Ch. 6 - Prob. 5DQCh. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - The inventory at the end of the year was...Ch. 6 - Prob. 9DQCh. 6 - Prob. 10DQ
Ch. 6 - Cost flow methods The following three identical...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Beginning inventory, purchases, and sales for...Ch. 6 - The units of an item available for sale during the...Ch. 6 - On the basis of the following data, determine the...Ch. 6 - Effect of inventory errors During the taking of...Ch. 6 - Financial statement data for years ending December...Ch. 6 - Control of inventories Triple Creek Hardware Store...Ch. 6 - Prob. 2ECh. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - FIFO and LIFO costs under perpetual inventory...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Assume that the business in Exercise 6-9 maintains...Ch. 6 - Assume that the business in Exercise 6-9 maintains...Ch. 6 - The units of an item available for sale during the...Ch. 6 - Periodic inventory by three methods; cost of goods...Ch. 6 - Prob. 14ECh. 6 - On the basis of the following data, determine the...Ch. 6 - Based on the data in Exercise 6-15 part (a) and...Ch. 6 - Effect of errors in physical inventory Madison...Ch. 6 - Fonda Motorcycle Shop sells motorcycles, ATVs, and...Ch. 6 - Error in inventory During 20Y5, the accountant...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method On the basis of the following data,...Ch. 6 - Prob. 24ECh. 6 - Gross profit method Based on the following data,...Ch. 6 - Gross profit method Based on the following data,...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - The beginning inventory at Midnight Supplies and...Ch. 6 - The beginning inventory for Midnight Supplies and...Ch. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Periodic inventory by three methods Dymac...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - LIFO perpetual inventory The beginning inventory...Ch. 6 - Prob. 3PBCh. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Pappas Appliances uses the periodic inventory...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - Amazon.com, Inc. (AMZN) is one of the largest...Ch. 6 - Darden Restaurants, Inc. (DRI) is the largest...Ch. 6 - The general merchandise retail industry has a...Ch. 6 - Monster Beverage Corporation (MNST) develops,...Ch. 6 - Ethics in Action Sizemo Elektroniks sells...Ch. 6 - Anstead Co. is experiencing a decrease in sales...Ch. 6 - Communication Golden Eagle Company began...
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- Gross 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_forwardGross Profit Method A fire completely destroyed all the inventory of Glisan Lumber Yard on August 5, 20--. Fortunately, the accounting records were not destroyed in the fire. The following information is provided by Glisan Lumber Yard for the time period January 1 through August 5: Beginning inventory, January 1, 20-- $98,000 Net purchases, January 1 through August 5 426,000 Net sales, January 1 through August 5 721,000 Normal gross profit as a percentage of sales 40% Required: Estimate the amount of merchandise inventory destroyed in the fire on August 5 using the gross profit method $_____arrow_forward(Gross Profit Method) Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Sales are made at 331/3% above cost and totaled $100,000 to March 9. Goods costing $10,900 were left undamaged by the fire; remaining goods were destroyed.Instructions(a) Compute the cost of goods destroyed.(b) Compute the cost of goods destroyed, assuming that the gross profit is 331/3% of sales.arrow_forward
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- On February 26 a hurricane destroyed the entire inventory stored in a warehouse owned by the Rockford Corporation. The following information is available from the records of the company’s periodic inventory system: beginning inventory, $220,000; purchases and net sales from the beginning of the year through February 26, $400,000 and $600,000, respectively; gross profit ratio, 30%. Estimate the cost of the inventory destroyed by the hurricane using the gross profit method. Beginning inventory Plus: Net purchases Cost of goods available for sale Less: Cost of goods sold: Net sales Less: Estimated gross profit Estimated cost of goods sold Estimated cost of inventory destroyedarrow_forwardASAP!! The merchandise inventory of Ayan & Co. was destroyed by fire on 4th May 2021. The following data were obtained from the accounting record: Opening Inventory 1,120,000 Purchases 1,056,000 Purchases Returned & Allowance 52,000 Sales 2,870,000 Sales Return & Allowance 8,000 Estimated Gross Profit Rate 41% Required Compute the estimated cost of merchandise inventory destroyed by firearrow_forwardBlossom Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $39,520. Purchases since January 1 were $74,880; freight-in, $3,536; purchase returns and allowances, $2,496. Sales are made at 33 1/3% above cost and totaled $117,000 to March 9. Goods costing $11,336 were left undamaged by the fire; remaining goods were destroyed. Compute the cost of goods destroyed = ? Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales = ?arrow_forward
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