David Patel was at home when he received a call from the fire department telling him his store had burned. His business was a total loss. The insurance company asked him to prove his inventory loss. For the year, until the date of the fire, Patel’s company had sales of $450,000 and purchases of $280,000. Freight-in amounted to $13,700, and beginning inventory was $45,000. Patel always priced his goods to achieve a gross margin of 40 percent. Compute Patel’s estimated inventory loss.
Indicate whether each of the following items is associated with (a) allocating the cost of inventories in accordance with the accrual accounting, (b) assessing the impact of inventory decisions, (c) evaluating the level of inventory, or (d) engaging in an unethical action.
1. Application of the just-in-time operating environment.
2. Determining the effects of inventory methods on income taxes.
3. Computing inventory turnover.
4. Valuing inventory at an amount to meet management’s targeted net income.
5. Determining the effects of inventory decisions on cash flows.
6. Apportioning the cost of goods available for sale to ending inventory and cost of goods sold.
7. Determining the assumption about the flow of costs into and out of the company.