On January 20, 2011, the records of the Stewart Company revealed the following information: Inventory, July 1,

Question:

On January 20, 2011, the records of the Stewart Company revealed the following information:
Inventory, July 1, 2010 ............. $ 53,600
Purchases, July 1, 2010–January 20, 2011 ....... 368,000
Sales, July 1, 2010–January 20, 2011 ......... 583,000
Purchases returns ................. 11,200
Purchases discounts taken ............ $5,800
Freight-in .................... 3,800
Sales returns .................. 6,600
A fire destroyed the entire inventory on January 20, 2011 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 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 financial statements?

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...