Question

Underwater, Inc. had a flood in its plant that destroyed most of its inventory. After the flood, Underwater's accounting records showed the following: Beginning inventory $20,000 Purchases, year to date 250,000 Sales, year to date 300,000 Salvage value of some of the damaged inventory 7,500 Gross profit percentage on sales 35% The insurance company will reimburse Underwater for 75% of its loss. What amount should Underwater report as the net loss from the flood

Answer 1

Answer:

$16,875

Explanation:

Calculation for What amount should Underwater report as the net loss from the flood

Net loss from the flood=[( $250,000+$20,000)-(($300,000-($300,000* 35%))-$7,500]-($75,000-$7,500*75%)

Net loss from the flood=[$270,000-($300,000-$105,000)-$7,500]-($75,000-$7,500*75%)

Net loss from the flood=[($270,000- $195,000)-$7,500]-($75,000-$7,500*75%)

Net loss from the flood=($75,000-$7,500)-($75,000-$7,500*75%)

Net loss from the flood=$67,500-$50,625

Net loss from the flood= $16,875

Therefore the amount that Underwater should report as the net loss from the flood is $16,875