On January 20, 2008 the records of the Stewart Company revealed the following information: A fire destroyed

Question:

On January 20, 2008 the records of the Stewart Company revealed the following information:

A fire destroyed the entire inventory on January 20, 2008 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 financialstatements?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...