Answer to Question #213156 in Accounting for zuby

Question

Nakatobi Company has a warehouse in Fargo, ND. The company utilizes a periodic inventory system. At the beginning of the year, the warehouse contained $369,000 worth of inventory. During the first quarter, Nakatobi purchased another $218,000 worth of inventory and made sales of $450,000. On April 1, a flood hit Fargo and destroyed half of the inventory housed in the warehouse. Nakatobi needs to estimate the value of the inventory for insurance purposes. The only additional information Nakatobi has is that typically its cost of goods sold is 55 percent of sales.

1.

Determine the value of the inventory on March 31, before the flood hit.

2.

Determine Nakatobi’s loss on April 1.

Answer 1

inventory on March 31, before the flood hit.

1. $369,000 + $218,000 =$587,000

Nakatobi’s loss on April 1.

To get loss we subtract cost of goods sold from total inventory

1/2 × 587,000 = 293,500

55% × 450,000 = 247,500

Loss = 293,500 - 247,500

= $46,000