P 9-5 (gross profit method) On April 15, 2011, fire damaged the office and warehouse of Stanislaw Corporation.

 

P 9-5 (gross profit method) Stanislaw Corporation.

 

ANSWER KEYP 9-5 (gross profit method)Stanislaw Corporation.

 

The only accounting record saved was the general ledger, from which the trial balance below was prepared.

Trial Balance March 31, 2011

Cash 20000

Accts Recv 40000

Inventory 12/31/07 75000

Land 35000

Building and Equip 110000

Accumulated depreciation 41300

Other assets 3600

Accts Payable 23700

Other expense accruals 10200

Capital stock 100000

Retained earnings 52000

Sales 135000

Purchases 52000

Other expenses 26600

Total 362200 362200

 

The following data and information have been gathered.

1. The fiscal year of the corporation ends on Dec 31.

2. An examination of the April bank statement and canceled checks revealed that checks written during the period April 1-15 totaled $13,000: $5,700 paid to accounts payable as of March 31, $3400 for April merchandise shipments, and $3900 paid for other expenses. Deposits during the same period amounted to $12,950, which consisted of receipts on account from customers with the exception of a $950 refund from a vendor for merchandise returned in April.

3. Correspondence with suppliers revealed unrecorded obligations at April 15 of $15,600 for April merchandise shipments, including $2300 for shipments in transit (f.o.b. shipping point) on that date. 4. Customers acknowledged indebtedness of $46,000 at April 15, 2011. It was also estimated that customers owed another $8000 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $600 will probably be uncollectible.

5. The companies insuring the inventory agreed that the corporation's fire-loss claim should be based on the assumption that the overall gross profit ratio for the past 2 years was in effect during the current year.

 

The corporation's audited financial statements disclosed this information: Year Ended Dec 31, 2010 Net sales 530000

Net purchases 280000

Beginning inventory 50000

Ending inventory 75000

Year Ended Dec 31, 2009

Net sales 390000

Net purchases 235000

Beginning inventory 66000

Ending inventory 50000

 

6. Inventory with a cost of $7000 was salvaged and sold for $3500. The balance of the inventory was a total loss.

 

Instructions:

Prepare a schedule computing the amount of inventory fire loss. The supporting schedule of the computation of the gross profit should be in good form.