Estimation of Fire Loss On January 20, 2008 the records of the Stewart Company revealed the following information:
|
Inventory, July 1, 2007 |
$53,600 |
Purchases discounts taken |
$5,800 |
|
Purchases, July 1, 2007–January 20, 2008 |
368,000 |
Freight in |
3,800 |
|
Sales, July 1, 2007–January 20, 2008 |
583,000 |
Sales returns |
6,600 |
|
Purchases returns |
11,200 |
A fire destroyed the entire inventory on January 20, 2008 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. If a company discloses that it uses a periodic inventory system, what concerns might you have about its interim financial statements?