Question

Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following. Inventory (beginning) $ 80,000 Sales revenue $415,000 Purchases 290,000 Sales returns 21,000 Purchase returns 28,000 Gross profit % based on net selling price 35 % Merchandise with a selling price of $30,000 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,150. The company does not carry fire insurance on its inventory. Compute the amount of inventory fire loss. (Do not use the retail inventory method.)

Answer 1

To calculate Eastman Company's inventory fire loss, we subtract the value of undamaged and damaged merchandise from the pre-fire ending inventory. The inventory fire loss amounted to $47,750.

Step-by-step explanation:

Calculating Inventory Loss

To compute the inventory lost in the fire, we need to follow these steps:

1. Calculate the net sales revenue by subtracting the sales returns from the total sales revenue.
2. Calculate the cost of goods sold (COGS) using the gross profit percentage.
3. Calculate the ending inventory before the fire by adding the beginning inventory and purchases, and then subtracting the COGS.
4. Deduct the value of undamaged and damaged merchandise from the ending inventory to find the fire loss.

Here's how:

1. Net Sales Revenue = Sales Revenue - Sales Returns
415,000 - 21,000 = 394,000

2. COGS = Net Sales Revenue * (1 - Gross Profit %)
394,000 * (1 - 0.35) = 394,000 * 0.65 = 256,100

3. Ending Inventory Before Fire = Beginning Inventory + Purchases - Purchase Returns - COGS
80,000 + 290,000 - 28,000 - 256,100 = 85,900

4. Inventory Fire Loss = Ending Inventory Before Fire - (Value of Undamaged Merchandise + Value of Damaged Merchandise)
85,900 - (30,000 + 8,150) = 85,900 - 38,150 = 47,750

Therefore, the inventory fire loss Eastman Company incurred is $47,750.

Answer 2

The amount of inventory fire loss $ 66,400.

Step-by-step explanation:

To compute he amount of inventory fire loss we have to find cost of closing unit. Detail calculation is given below.

Add

Opening Stock $ 80,000

Purchase $ 290,000

Sale Return (21,000*0.65) $ 13,650

Less

Sold (415,000 * 0.65) $ 269,750

Purchase return $ 28,000

Total Closing (BAL) $ 85,900

Undamage stock ($ 19,500) (0.65 * 30,000)

Fire Loss $ 66,400