9-1 Inventory Estimation Gross Profit Method Chapter 9 Illustrated Solution: Problem 9-32
9-2 Problem Background n Fire has destroyed all inventory and many accounting records. n Using available information, determine the inventory loss suffered as a result of the fire. n Assumption: The gross profit percentage from past years ( ) is a reasonable estimate of the gross profit percentage for 2002 up to the fire.
9-3 Gross Profit Percentage (Estimate) Average gross profit on sales: Gross profit Sales = Gross profit on sales percentage
9-4 Gross Profit Percentage (Estimate) Average gross profit on sales: Gross profit Sales = Gross profit on sales percentage
9-5 Gross Profit Percentage (Estimate) Average gross profit percentage: = ÷ 3 = 0.30 or 30% Average gross profit on sales: Gross profit Sales = Gross profit on sales percentage
9-6 Sales for 2002 Collections on accounts receivable (January 1 – August 13)$753,800 Add: Accounts receivable at August 13128,890
9-7 Sales for 2002 Collections on accounts receivable (January 1 – August 13)$753,800 Add: Accounts receivable at August 13128,890 Deduct: Accounts receivable at January 1(130,590) Estimated Sales$752,100
9-8 Cost of Goods Sold for 2002 Collections on accounts receivable (January 1 – August 13)$753,800 Add: Accounts receivable at August 13128,890 Deduct: Accounts receivable at January 1(130,590) Estimated Sales$752,100 Average cost percentage last 3 years (1.00 – 0.30 = 0.70)x 0.70 Estimated cost of goods sold for January 1 – August 13$526,470
9-9 Inventory, January 1$143,850 Add: Purchases Payments to suppliers$487,500 Accounts payable to suppliers at August 13122,850 Goods Available for Sale
9-10 Inventory, January 1$143,850 Add: Purchases Payments to suppliers$487,500 Accounts payable to suppliers at August 13122,850 Deduct: Accounts payable to suppliers, January 1(88,140)$522,210 Estimated goods available for sale666,060 Goods Available for Sale
9-11 Inventory, January 1$143,850 Add: Purchases Payments to suppliers$487,500 Accounts payable to suppliers at August 13122,850 Deduct: Accounts payable to suppliers, January 1(88,140)$522,210 Estimated goods available for sale666,060 Estimated cost of goods sold526,470 Ending Inventory
9-12 Inventory, January 1$143,850 Add: Purchases Payments to suppliers$487,500 Accounts payable to suppliers at August 13122,850 Deduct: Accounts payable to suppliers, January 1(88,140)$522,210 Estimated goods available for sale666,060 Estimated cost of goods sold526,470 Estimated ending inventory at August 13$139,590 Ending Inventory
9-13 Net Inventory Loss from Fire Inventory, January 1$143,850 Add: Purchases Payments to suppliers$487,500 Accounts payable to suppliers at August 13122,850 Deduct: Accounts payable to suppliers, January 1(88,140)$522,210 Estimated goods available for sale666,060 Estimated cost of goods sold526,470 Estimated ending inventory at August 13$139,590 Less: Inventory out on consignment52,900 Net loss of inventory from fire$86,690
9-14 End of Problem