Corporate Financial Accounting
14th Edition
ISBN: 9781305653535
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 6, Problem 6.24EX
(a)
To determine
Gross profit method
This method is use the estimated gross profit for the period to evaluate and ascertain the ending inventory for the period. The gross profit for the period is calculated from the preceding year, which is adjusted for any current period changes in the sales and cost price of the inventory.
To estimate: the cost of merchandise destroyed.
(b)
To determine
To describe: the situations whereby gross profit method is useful.
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Gross Profit Method
The inventory was destroyed by fire on December 31. The following data were obtained from the accounting records:
Jan. 1
Inventory
$350,000
Jan. 1 - Dec. 31
Purchases (net)
2,950,000
Sales
4,440,000
Estimated gross profit rate
35%
a. Estimate the cost of the inventory destroyed.
Estimated Cost of Merchandise Destroyed
$
$
$
$
b. Which method is used to estimate inventory cost in case of inventory destroyed by fire?
Gross Profit Method
The merchandise inventory was destroyed by fire on December 13. The following data were obtained from the accounting records:
Jan. 1
Merchandise inventory
$350,000
Jan. 1-Dec. 31
Purchases (net)
2,950,000
Sales (net)
4.440,000
Estimated gross profit rate
35%
a. Estimate the cost of the merchandise destroyed.
Cost of the Merchandise Destroyed
$
$
b. Briefly describe the situations in which the gross profit method is useful.
1. The gross profit method is useful for estimating inventories for monthly or quarterly financial statements.
2. It is useful in estimating the cost of merchandise destroyed by fire or other disasters.
3. It is useful in reducing the carrying cost of inventory.
4. It is useful in achieving a higher net income.
The merchandise inventory was destroyed by fire on December 13. The following data
were obtained from the accounting records:
Merchandise inventory
$ 350,000
Jan. 1
Jan. 1-Dec. 31
Purchases (net)
2,950,000
Sales
4,440,000
Estimated gross profit rate
35%
a. Estimate the cost of the merchandise destroyed.
b. Briefly describe the situations in which the gross profit method is useful.
Chapter 6 Solutions
Corporate Financial Accounting
Ch. 6 - Prob. 1DQCh. 6 - Why is it important to periodically take a...Ch. 6 - Do the terms FIFO, LIFO, and weighted average...Ch. 6 - If inventory is being valued at cost and the price...Ch. 6 - Which of the three methods of inventory...Ch. 6 - If inventory is being valued at cost and the price...Ch. 6 - Using the following data, how should the inventory...Ch. 6 - The inventory at the end of the year was...Ch. 6 - Hutch Co. sold merchandise to Bibbins Company on...Ch. 6 - A manufacturer shipped merchandise to a retailer...
Ch. 6 - Cost flow methods The following three identical...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Periodic inventory using FIFO, UFO, and weighted...Ch. 6 - Lower-of-cost-or-market method On the basis of the...Ch. 6 - Effect of inventory errors During the taking of...Ch. 6 - Control of inventories Triple Creek Hardware Store...Ch. 6 - Control of inventories Hardcase Luggage Shop is a...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - FIFO and UFO costs under perpetual inventory...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Periodic inventory by three methods The units of...Ch. 6 - Periodic inventory by three methods; cost of goods...Ch. 6 - Comparing inventory methods Assume that a firm...Ch. 6 - Lower-of-cost-or-market inventory On the basis of...Ch. 6 - Inventory on the balance sheet Based on the data...Ch. 6 - Effect of errors n physical inventory Madison...Ch. 6 - Effect of errors in physical inventory Fonda...Ch. 6 - Prob. 6.19EXCh. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Prob. 6.22EXCh. 6 - Retail method On the basis of the following data,...Ch. 6 - Prob. 6.24EXCh. 6 - Gross profit method Based on the following data,...Ch. 6 - Gross profit method Based on the following data,...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - LIFO perpetual inventory The beginning inventory...Ch. 6 - Weighted average cost method with perpetual...Ch. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Periodic inventory by three methods Dymac...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - LIFO perpetual inventory The beginning inventory...Ch. 6 - Weighted average cost method with perpetual...Ch. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Periodic inventory by three methods Pappas...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - Continuing Company AnalysisAmazon: Inventory...Ch. 6 - Costco, Walmart, Nordstrom: Inventory turnover and...Ch. 6 - Monster Beverage and Brown-Forman: Inventory...Ch. 6 - Prob. 6.4ADMCh. 6 - Ethics in Action Sizemo Elektroniks sells...Ch. 6 - Communication Golden Eagle Company began...
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