BYP
6-4 On April 10, 2008, fire damaged the office and warehouse of Inwood Company.
Most of the accounting records were destroyed, but the following account
balances were determined as of March 31, 2008: Merchandise Inventory, January
1, 2008, $80,000; Sales (January 1–March 31, 2008), $180,000; Purchases
(January 1–March 31, 2008) $94,000. The company’s fiscal year ends on December
31. It uses a periodic inventory system. From an analysis of the April bank
statement, you discover cancelled checks of $4,200 for cash purchases during
the period April 1–10. Deposits during the same period totaled $18,500. Of that
amount, 60% were collections on accounts receivable, and the balance was cash
sales. Correspondence with the company’s principal suppliers revealed $12,400
of purchases on account from April 1 to April 10. Of that amount, $1,600 was
for merchandise in transit on April 10 that was shipped FOB destination.
Correspondence with the company’s principal customers produced acknowledgments
of credit sales totaling $37,000 from April 1 to April 10. It was estimated
that $5,600 of credit sales will never be acknowledged or recovered from
customers.
Inwood
Company reached an agreement with the insurance company that its fire-loss
claim should be based on the average of the gross profit rates for the
preceding 2 years. The financial statements for 2006 and 2007 showed the
following data.
2007
2006
Net
sales $600,000 $480,000 Cost of goods purchased 404,000 356,000 Beginning inventory 60,000 40,000 Ending inventory 80,000
60,000 Inventory with a cost of $17,000 was salvaged from the fire.
Instructions
With
the class divided into groups, answer the following.
(a)
Determine the balances in (1) Sales and (2) Purchases at April 10.
(b)
Determine the average profit rate for the years 2006 and 2007. (Hint: Find the
gross profit rate for each year and divide the sum by 2.)
(c)
Determine the inventory loss as a result of the fire, using the gross profit
method.
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