Estimation of Fire Loss On January 20, 2011, the records of the Stewart Company revealed the following information: 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 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 financial statements?
Estimation of Fire Loss On January 20, 2011, the records of the Stewart Company revealed the following information: 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 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 financial statements?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Estimation of Fire Loss On January 20, 2011, the records of the Stewart Company revealed the following information:
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 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 financial statements?
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