9-1 Inventory Estimation Gross Profit Method Chapter 9 Illustrated Solution: Problem 9-32
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9-1
Inventory EstimationGross Profit Method
Chapter 9Illustrated Solution: Problem 9-32Illustrated Solution: Problem 9-32
9-2
Problem BackgroundProblem Background
Fire has destroyed all inventory and many accounting records.
Using available information, determine the inventory loss suffered as a result of the fire.
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.
9-3
Gross Profit Percentage (Estimate)Gross Profit Percentage (Estimate)
Average gross profit on sales: Gross profitSales
= Gross profit on sales percentage
9-4
Gross Profit Percentage (Estimate)Gross Profit Percentage (Estimate)
1999 2000 2001
= 30% = 26% = 34%$ ,$ ,187 800626 000
$ ,$ ,
183 300705 000
$ ,$ ,
231200680 000
Average gross profit on sales: Gross profitSales
= Gross profit on sales percentage
9-5
Gross Profit Percentage (Estimate)Gross Profit Percentage (Estimate)
Average gross profit percentage: 0.30 + 0.26 + 0.34 = 0.90
0.90 ÷ 3 = 0.30 or 30%
1999 2000 2001
= 30% = 26% = 34%$ ,$ ,187 800626 000
$ ,$ ,
183 300705 000
$ ,$ ,
231200680 000
Average gross profit on sales: Gross profitSales
= Gross profit on sales percentage
9-6
Sales for 2002Sales for 2002
Collections on accounts receivable (January 1 – August 13) $753,800
Add: Accounts receivable at August 13 128,890
9-7
Sales for 2002Sales for 2002
Collections on accounts receivable (January 1 – August 13) $753,800
Add: Accounts receivable at August 13 128,890
Deduct: Accounts receivable at January 1 (130,590)
Estimated Sales $752,100
9-8
Cost of Goods Sold for 2002Cost of Goods Sold for 2002
Collections on accounts receivable (January 1 – August 13) $753,800
Add: Accounts receivable at August 13 128,890
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 13 122,850
Goods Available for SaleGoods Available for Sale
9-10
Inventory, January 1 $143,850
Add: Purchases
Payments to suppliers $487,500
Accounts payable to suppliers at August 13 122,850
Deduct: Accounts payable to suppliers, January 1 (88,140) $522,210
Estimated goods available for sale 666,060
Goods Available for SaleGoods Available for Sale
9-11
Inventory, January 1 $143,850
Add: Purchases
Payments to suppliers $487,500
Accounts payable to suppliers at August 13 122,850
Deduct: Accounts payable to suppliers, January 1 (88,140) $522,210
Estimated goods available for sale 666,060
Estimated cost of goods sold 526,470
Ending InventoryEnding Inventory
9-12
Inventory, January 1 $143,850
Add: Purchases
Payments to suppliers $487,500
Accounts payable to suppliers at August 13 122,850
Deduct: Accounts payable to suppliers, January 1 (88,140) $522,210
Estimated goods available for sale 666,060
Estimated cost of goods sold 526,470
Estimated ending inventory at August 13 $139,590
Ending InventoryEnding Inventory
9-13
Net Inventory Loss from FireNet Inventory Loss from Fire
Inventory, January 1 $143,850
Add: Purchases
Payments to suppliers $487,500
Accounts payable to suppliers at August 13 122,850
Deduct: Accounts payable to suppliers, January 1 (88,140) $522,210
Estimated goods available for sale 666,060
Estimated cost of goods sold 526,470
Estimated ending inventory at August 13 $139,590
Less: Inventory out on consignment 52,900
Net loss of inventory from fire $86,690
9-14
End of ProblemEnd of Problem
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