On January 20, 2020, Stewart Companys records revealed the following information: Inventory, July 1, 2019 $ .......................................................55,300

Question:

On January 20, 2020, Stewart Company’s records revealed the following information:

Inventory, July 1, 2019 $ .......................................................55,300
Purchases, July 1, 2019–January 20, 2020 ........................382,100
Sales, July 1, 2019–January 20, 2020 .................................592,000
Purchases returns ................................................................10,400
Purchases discounts taken ...................................................6,800
Freight-in .................................................................................3,500
Sales returns ...........................................................................6,600
A fire destroyed the entire inventory on January 20, 2020, except for purchases in transit, FOB shipping point of $6,000, and goods having a selling price of $4,700 that were salvaged from the fire. The salvaged goods had an estimated salvage value of $2,900. The average gross profit on net sales in previous periods was 40%.

Required:
1. Compute the cost of the inventory lost in the fire.
2. Next Level If a company discloses that it uses a periodic inventory system, what concerns might you have about its interim financial statements?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...

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