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# Gross Profit Method.

P9-4) Gross Profit Method:

David Hasselholf Company lost most of its inventory in a fire in December just before the year end physical inventory was taken. Corporate records disclose the following.

Inventory ......................80000 Purchases.....................280000

Purchases return..............28000 Sales...........................415000

Sales Return....................21000 Gross Profit % based on net selling price.....................34%

Merchandise with a selling price of \$30000 remained undamaged after the fire, and damaged merchandise has a salvage value of \$7150. 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).

Problem 11-11

(Depreciation for Partial Periods- SL-Act., SYD, and DDB)
On January 1, 2005, a machine was purchased for \$77,000. The machine has an estimated salvage value of \$5,000 and an estimated use full life of % years. The machine can operate for 100,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2005, 20,000 hours, 2006, 25,000 hours; 2007, 15,000 hours; 2009, 10,000 hours.

Instructions:

A) Compute the annual depreciation charges over the machine's life assuming a December 31 year end for each of the following depreciation methods.
1- Straight line method
2- Activity Method
3- Sum of the year's digits methods
4- Double declining balance method

B) Assume the fiscal year end of September 30. Compute the annual depreciation charges over the asset's life applying each of the following g methods.
1- Straight line method
2- Activity Method
3- Sum of the year's digits methods
4- Double declining balance method

#### Solution Preview

P9-4) Gross Profit Method:

David Hasselholf Company lost most of its inventory in a fire in December just before the year end physical inventory was taken. Corporate records disclose the following.

Inventory ......................80000 Purchases.....................280000

Purchases return..............28000 Sales...........................415000

Sales Return....................21000 Gross Profit % based on net selling price.....................34%

Merchandise with a selling price of \$30000 remained undamaged after the fire, and damaged merchandise has a salvage value of \$7150. 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).

According to the Gross profit method (before the fire):

Beginning inventory (at cost) \$80,000
Purchases (at cost) 280,000
Less: Purchases return 28,000
Goods available (at cost) 332,000
Sales (at selling price) \$415,000
Less: Gross profit (34% of \$415,000) 141,100
Sales (at cost) 273,900
Approximate inventory (at cost) \$58,100

After the fire:

Beginning inventory (at cost) \$37,150 (30,000 undamaged + 7,150 salvage)
Purchases (at cost) 280,000
Less: Purchases ...

#### Solution Summary

The solution prepares a formal labeled schedule computing the fire loss incurred. The annual depreciation charges are computed over the machine's life.

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