Gross Profit Method: Estimation of Fire Loss

On January 20, 2017, Stewart Companys records revealed the following information:

Inventory, July 1, 2016	$ 55,300
Purchases, July 1, 2016January 20, 2017	382,100
Sales, July 1, 2016January 20, 2017	592,000
Purchases returns	10,400
Purchases discounts taken	6,800
Freight-in	3,500
Sales returns	6,600

A fire destroyed the entire inventory on January 20, 2017, 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:

Compute the cost of the inventory lost in the fire.

STEWART COMPANY
Computation of Cost of Inventory Lost in Fire
January 20, 2017
Schedule 1
Inventory, July 1, 2016	$
Purchases (less $6,000 in transit)
Less: Purchases returns
Less: Purchases discounts taken
Freight-in
Cost of goods available for sale and on hand	$
Schedule 2
Sales	$
Less: Sales returns
Net sales	$
Schedule 3
Cost of goods sold	$
Cost of goods salvaged	$
Schedule 4
Inventory lost in the fire:
Cost of goods available for sale and on hand	$
Less: Cost of goods sold
Less: Cost of goods salvaged
Inventory lost	$

2. If a company discloses that it uses the inventory method, it is the ending inventory reported in its interim financial reports which may cause concern about the accuracy of the reported amounts.