Estimation of Fire Loss On January 20, 2011, the records of the Stewart Company revealed the following information: A fire destroyed the entire inventory on January 20, 2011 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?
Estimation of Fire Loss On January 20, 2011, the records of the Stewart Company revealed the following information: A fire destroyed the entire inventory on January 20, 2011 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?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter8: Inventories: Special Valuation Issues
Section: Chapter Questions
Problem 7E
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Estimation of Fire Loss On January 20, 2011, the records of the Stewart Company revealed the following information:
A fire destroyed the entire inventory on January 20, 2011 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?
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