1460T_c09.qxd01:09:200609:04 AM Page460 EQA 460.Chapter 9 Inventories:Additional Valuation Issues Cost Lower-of-Cost-or-Market 12/31/06 $650.000 $650,000 12/31/07 780,000 722,000 12/31/08 900.000 830,000 Instructions (a)Prepare the journal entries required at December 31,2007,and at December 31,2008,assuming that a perpetual inventory system and the direct method of adjusting to market is used. (b)Prepare the journal entries required at December 31,2007,and at December 31,2008,assuming that a perpetual inventory is recorded at cost and reduced to market through the use of an allowance account (indirect method). (L0 5)P9-4 (Gross Profit Method)David Hasselholf Company lost most of its inventory in a fire in Decem- ber just before the year-end physical inventory was taken.Corporate records disclose the following. Inventory (beginning) $80.000 Sales $415,000 Purchases 280.000 Sales returns 21,000 Purchase returns 28.000 Gross profit based on net selling price 34% Merchandise with a selling price of $30,000 remained undamaged after the fire,and damaged merchan- dise has a salvage value of $7,150.The company does not carry fire insurance on its inventory. Instructions Prepare a formal labeled schedule computing the fire loss incurred.(Do not use the retail inventory method.) (L0 5)P9-5 (Gross Profit Method)On April 15,2008,fire damaged the office and warehouse of John Kim- mel Corporation.The only accounting record saved was the general ledger,from which the trial balance below was prepared. JOHN KIMMEL CORPORATION Trial Balance ⊕ March 31,2008 Cash $20,000 Accounts receivable 40,000 Inventory,December 31,2007 75,000 Land 35.000 Building and equipment 110,000 Accumulated depreciation $41,300 Other assets 3,600 Accounts payable 23,700 Other expense accruals 10.200 Capital stock 100.000 Retained earnings 52.000 Sales 135.000 Purchases 52,000 Other expenses 26,600 $362,200 $362,200 The following data and information have been gathered. 1.The fiscal year of the corporation ends on December 31. 2.An examination of the April bank statement and canceled checks revealed that checks written dur- ing the period April 1-15 totaled $13,000:$5,700 paid to accounts payable as of March 31,$3,400 for April merchandise shipments,and $3,900 paid for other expenses.Deposits during the same period amounted to $12,950,which consisted of receipts on account from customers with the exception of a $950 refund from a vendor for merchandise returned in April. 3.Correspondence with suppliers revealed unrecorded obligations at April 15 of $10,600 for April merchandise shipments,including $2,300 for shipments in transit(f.o.b.shipping point)on that date. 4.Customers acknowledged indebtedness of $36,000 at April 15,2008.It was also estimated that cus- tomers owed another $8,000 that will never be acknowledged or recovered.Of the acknowledged indebtedness,$600 will probably be uncollectible.Cost Lower-of-Cost-or-Market 12/31/06 $650,000 $650,000 12/31/07 780,000 722,000 12/31/08 900,000 830,000 Instructions (a) Prepare the journal entries required at December 31, 2007, and at December 31, 2008, assuming that a perpetual inventory system and the direct method of adjusting to market is used. (b) Prepare the journal entries required at December 31, 2007, and at December 31, 2008, assuming that a perpetual inventory is recorded at cost and reduced to market through the use of an allowance account (indirect method). P9-4 (Gross Profit Method) David Hasselholf Company lost most of its inventory in a fire in Decem￾ber just before the year-end physical inventory was taken. Corporate records disclose the following. Inventory (beginning) $ 80,000 Sales $415,000 Purchases 280,000 Sales returns 21,000 Purchase returns 28,000 Gross profit % based on net selling price 34% Merchandise with a selling price of $30,000 remained undamaged after the fire, and damaged merchan￾dise has a salvage value of $7,150. The company does not carry fire insurance on its inventory. Instructions Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.) P9-5 (Gross Profit Method) On April 15, 2008, fire damaged the office and warehouse of John Kim￾mel Corporation. The only accounting record saved was the general ledger, from which the trial balance below was prepared. JOHN KIMMEL CORPORATION Trial Balance March 31, 2008 Cash $ 20,000 Accounts receivable 40,000 Inventory, December 31, 2007 75,000 Land 35,000 Building and equipment 110,000 Accumulated depreciation $ 41,300 Other assets 3,600 Accounts payable 23,700 Other expense accruals 10,200 Capital stock 100,000 Retained earnings 52,000 Sales 135,000 Purchases 52,000 Other expenses 26,600 $362,200 $362,200 The following data and information have been gathered. 1. The fiscal year of the corporation ends on December 31. 2. An examination of the April bank statement and canceled checks revealed that checks written dur￾ing the period April 1–15 totaled $13,000: $5,700 paid to accounts payable as of March 31, $3,400 for April merchandise shipments, and $3,900 paid for other expenses. Deposits during the same period amounted to $12,950, which consisted of receipts on account from customers with the exception of a $950 refund from a vendor for merchandise returned in April. 3. Correspondence with suppliers revealed unrecorded obligations at April 15 of $10,600 for April merchandise shipments, including $2,300 for shipments in transit (f.o.b. shipping point) on that date. 4. Customers acknowledged indebtedness of $36,000 at April 15, 2008. It was also estimated that cus￾tomers owed another $8,000 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $600 will probably be uncollectible. 460 • Chapter 9 Inventories: Additional Valuation Issues (L0 5) (L0 5) 1460T_c09.qxd 01:09:2006 09:04 AM Page 460