Banana Corp. lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation's books disclosed the following.
- Beginning inventory $440,000
- Purchases for the year 850,000
- Purchase returns 55,000
- Sales $1,350,000
- Sales Retrns $50,000
- Gross Margin on sales 40%
Merchandise with a selling price of $42,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $30,000 had a net realizable value (after the fire) of 10,600.
1. Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage.
2. Prepare the journal entry to record the loss and account for the damaged inventory in a separate damaged inventory account. in the same entry, record cost of goods sold for the year ended Dec 31.
3. How would the loss be classified on the income statement of Reena Corp?
4. While the gross profit percentage has average 40% over the past 5 years, it has been as high as 42% and as low as 38%. given this information, should a range of possible loss amounts be provided instead of a single figure? explain.