Castlevania Company lost most of its inventory in a fire in December just before

Question

Castlevania Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation's books disclosed the following.

Beginning inventory $170,000 Sales
$650,000
Purchases for the year 450,000 Sales returns 24,000
Purchase returns 30,000 Rate of gross margin on net sales 30%


Merchandise with a selling price of $21,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $15,000 had a net realizable value (after the fire) of $5,300.

Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage

Explanation / Answer

Net Sales = Sales - Sale Returns = $650,000 - $24,000 = $626,000 Gross Margin = Net sales*Gross Margin= $626000*30% = $187,800 So COGS = Net Sales - Gross Margin = 626,000-187,800 = $438,200 ........(A) So Goods Available for Sale = Begin Inv + Purchs-Purch Ret = 170,000+450,000-30000 = $590,000 ..............(B) So Total AMount of Inv available = B-A = $590,000 - $438,000 = $151,800 ....(C) Cost price of Merch undamaed = $21000*(1-30%) = $14,700 ........(D) Cost of Merch Damaged = $15000*(1-30%) = $10,500 Net Realizabe value = $5300 So Loss of Merh damaged = $10500-$5300 = $5200 ......(E) So Amoutnt of Loss = Inv availble for Sale - Inv Undamaged -Loss of Inv Damaged = C-D-E = $151800 - 14700 -5200 = $131,900

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