On December 5, 2017, a hurricane destroyed the merchandise inventory of the Miami Muffler Company. In a waterproof secure safe were the companys records with the following information:

Miami Muffler Company

Trial Balance

September 30, 2017

Debit Credit

Cash . . . . . . . . . . . . . . . $315,325

Accounts Receivable. . . . . . 36,888

Inventory, December 31, 2016 . 129,226

Equipment. . . . . . . . . . . . . 200,775

Accumulated Depreciation . . . . . $ 32,670

Accounts Payable to Suppliers. . . 31,908

Other Current Liabilities. . . . . 2,000

Common Stock . . . . . . . . . . . 60,000

Retained Earnings. . . . . . . . . 41,482

Sales. . . . . . . . . . . . . . . 1,246,624

Sales Returns and Allowances . . . 17,900

Purchases. . . . . . . . . . . . . 546,930

Purchase Returns and Allowances. . 3,582

Sales and Administrative Expenses. 50,657

Other General Expenses . . . . . . 120,565

$1,418,266 $1,418,266

Note: The Companys 12 month fiscal year ends December 31st.

Through correspondence with suppliers, customers, the bank, etc. the following additional information has also been collected:

1. Correspondence with suppliers revealed unrecorded obligations at December 5^th of $120,734. These unrecorded liabilities pertained to shipments in October totaling $58,365, shipments in November of $50,635, and $10,000 for shipments in transit on December 5^th shipped FOB Destination and $1,734 for shipments in transit FOB Shipping Point.

2. Customers of the company have acknowledged indebtedness of $92,650 as of December 5^th. Based on no responses from several other customers, the company estimated that customers, who have not responded, owe approximately $9,350. Finally, based on past experience, it is estimated that 4.33% of accounts receivable will be uncollectible.

Additional Information Continues on the Next Page

Team Take Out Accounting 103 -- Page 2 of 3

3. Bank statements and the canceled checks enclosed with the statements for October, November and through December 5^th, revealed the following:

October November December

Disbursement Activity

Payments on Accounts Payable

Existing at September 30th $19,650 $12,258 $ --

Payments for October

Inventory Shipments 11,650 21,460 10,695

Payments for November

Inventory Shipments -- 25,870 4,732

Payments for December

Inventory Shipments -- -- 12,635

Deposit Activity Received

on Account From Customers 18,125 14,330 2,224

Refund From Vendor For

Merchandise Returned on

November 30, 2017 -- -- 3,950*

*This refund was delayed until December 2, 2017 because the supplier had lost the claim submitted by Miami Muffler.

4. The insurance company is proposing a settlement of the companys claim based on the overall gross profit for the most recent two fiscal years. Scheduled below is information obtained from prior financial statements covering 2016 and 2015:

For The Years Ended

December 31^st

2016 2015

Sales $671,108 $709,335

Sales Returns and Allowances 5,761 6,985

Beginning Inventory 57,569 50,345

Purchases 319,968 341,977

Purchase Returns and Allowances 1,235 916

Ending Inventory 129,226 57,569

Required

a. Determine the amount of inventory loss from the hurricane.

b. Do you feel the insurance companys approach is fair? Explain in detail with supporting calculations as you feel appropriate.