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 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
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from Financial Accounting: Help and ReviewChapter 1 / Lesson 6