2. 9-1 Inventory Estimation Gross Profit Method Chapter 9 Illustrated Solution: Problem 9-32

3. 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 (1999-2001) is a reasonable estimate of the gross profit percentage for 2002 up to the fire.

4. 9-3 Gross Profit Percentage (Estimate) Average gross profit on sales: Gross profit Sales = Gross profit on sales percentage

5. 9-4 Gross Profit Percentage (Estimate) Average gross profit on sales: Gross profit Sales = Gross profit on sales percentage

6. 9-5 Gross Profit Percentage (Estimate) Average gross profit percentage:0.30 + 0.26 + 0.34 = 0.90 0.90 ÷ 3 = 0.30 or 30% Average gross profit on sales: Gross profit Sales = Gross profit on sales percentage

7. 9-6 Sales for 2002 Collections on accounts receivable (January 1 – August 13)$753,800 Add: Accounts receivable at August 13128,890

8. 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. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 9-14 End of Problem