On April 10,2015, fire damaged the office and warehours of corver company. Most of the accounting records were destroyed, but the following account balance were determind as of March 31, 2015: Inventory ( January 1,2015) $80,000, Sales Revenue (January 1-March 31, 2015), $ 180,000; Purchase (January 1- March 31 2015), $94,000.

The company's fiscal year ends on December 31. It uses a periodic inventory system.

Form an anlysis of the April bank statement, you discover cancelled checks of $4,200 for cash purchase during the period April 1-10. Deposits during the same period totaled $ 18,500. Of that amount, 60% were collections on accounts receivable, and balance was cash sales.

Correspondence with company's principal suppliers revealed $12,400 of purchase on account from April 1 to April 10. Of that amount, $ 1,500 was for merchandise in transit on April 10 that was shipped FOB destination.

Correspondence with the company's principal customers produced acknowledgments of credit sales totaling $ 37,000 from April 1 to April 10. It was estimated that $ 5,600 of credit sales will never be acknowledged or recovered from customers.

Corvet Company reached an agreement with the insurance company that its fire-loss claim should be based on the average of the gross profit rates for the preceding 2 years. The financial statements for 2013 and 2014 showed the following data.

------------------------------------------------------------2014 -----------------------------2013

Net sales ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, $ 600,000------------------------- $480,000

Cost of goods purchased ,,,,,,,,,,,,,,,, 404,000 ----------------------------356,000

Beginning inventory ,,,,,,,,,,,,,,,,,,,,,,,,,,60,000 -------------------------------40,000

Ending inventory ,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 80,000 -------------------------------60,000

Inventory with a cost of $ 17,000 was salvaged from the fire.

Instructions

With the class divided into groups, answer the following.

(a) Determine the balances (1) Sales Revenue and (2) Purchases at April 10.

(b) Determine the average gross profit rate for the years 2013 and 2014 . ( Hint: Find the gross profit rate for each year and divide the sum by 2.)

(c) Determine the inventory loss as a result of the fire, using the gross profit method.