On January 20, 2017, Stewart Company’s records revealed the following information:

Inventory, July 1, 2016	$ 55,300
Purchases, July 1, 2016–January 20, 2017	382,100
Sales, July 1, 2016–January 20, 2017	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, 2017, 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.

STEWART COMPANY
Computation of Cost of Inventory Lost in Fire
January 20, 2017
Schedule 1
Inventory, July 1, 2016	$
Purchases (less $6,000 in transit)
Less: Purchases returns
Less: Purchases discounts taken
Freight-in
Cost of goods available for sale and on hand	$
Schedule 2
Sales	$
Less: Sales returns
Net sales	$
Schedule 3
Cost of goods sold	$
Cost of goods salvaged	$
Schedule 4
Inventory lost in the fire:
Cost of goods available for sale and on hand	$
Less: Cost of goods sold
Less: Cost of goods salvaged
Inventory lost	$

2. If a company discloses that it uses the inventory method, it is the ending inventory reported in its interim financial reports which may cause concern about the accuracy of the reported amounts.

Answer rating: 100% (QA)

The following computation provides the cost of the inventory lost in the fire STEWART COMPANY Comput... View the full answer