Correspondence with the company’s principal customers produced acknowledgments of credit sales totaling $37,000 from April 1 to April 10. It was estimated that $5,600 of credit sales will never be acknowledged or recovered from customers. Inwood Company reached an agreement with the insurance company that its fire loss claim should be based on the average of the gross profit rates for the preceding 2 years. The financial statements for 2009 and 2010 showed the following data.
|
2010 |
2010 |
|
|
Net sales |
$600,000 |
$600,000 |
|
Cost of goods purchased |
404,000 |
404,000 |
|
Beginning inventory |
60,000 |
60,000 |
|
Ending inventory |
80,000 |
80,000 |
Inventory with a cost of $17,000 was salvaged from the fire.
Instructions
With the class divided into groups, answer the following.
(a) Determine the balances in (1) Sales and (2) Purchases at April 10.
*(b) Determine the average profit rate for the years 2009 and 2010. (Hint: Find the gross profit rate for each year and divide the sum by 2.)
*(c) Determine the inventory loss as a result of the fire, using the gross profit method.