The inventory of Dogen Company was destroyed by fire on March 1. From an examination of the...

Question:

The inventory of Dogen 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 $1,000, Purchases $31,200, Freight-in $1,200, Purchase Returns and Allowances $1,400

Determine the merchandise lost by fire, assuming:

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

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

Inventory Valuation:

Inventory valuation is the cost of the inventory at the end of a period. Ending Inventory = Cost of goods available for sale(-) Cost of goods sold. Inventory lost by fire, since is a loss, it has to be accurately computed in order for the profit to be correct. Cost of goods sold = Beginning Inventory + Purchases- Ending Inventory. Using gross profit method, we can figure out the inventory.

Answer and Explanation:

Before beginning lets calculate the net sales and purchases.

  • Net sales = Sales Revenue - Sales Returns and Allowances = $51000-$1000 = $50000
  • Net...

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Calculate Ending Inventory: Formula & Explanation

from Financial Accounting: Help and Review

Chapter 1 / Lesson 6
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