Reena Corp. lost most of its inventory in a fire in December just before the year-end physical
Question:
Merchandise with a selling price of $42,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $30,000 had a net realizable value of $10,600.
Instructions
(a) Calculate the amount lost due to the fire, assuming that the corporation had no insurance coverage.
(b) Prepare the journal entry to record the loss and account for the damaged inventory in a separate Damaged Inventory account. In the same entry, record cost of goods sold for the year ended December 31.
(c) How would the loss be classified on the income statement of Reena Corp.?
(d) While the gross profit percentage has averaged 40% over the past five years, it has been as high as 42% and as low as 37.5%. Given this information, should a range of possible loss amounts be provided instead of a single figure? Explain.
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,