On December 31 2018 Mystic Morning Co inventory burned Sales

On December 31, 2018 Mystic Morning Co. inventory burned. Sales and purchases for the year had been $1,500,000 and $980,000, respectively. The beginning inventory (Jan. 1, 2018) was $170,000; in the past Mystic’s gross profit has averaged 30% of selling price.

Instructions (18pts) Compute the estimated cost of inventory burned, and give entries as of December 31, 2018 to close merchandise accounts.

Solution

Estimated cost of inventory burned: Beginning inventory 170000 Add: purchases 980000 1150000 Less: cost of goods sold [Sales-gross profit=1500000-(1500000*30%)] 1050000 Cost of inventory burned 100000 Journal entries: Debit Credit Sales 1500000 Income summary 1500000 (Closed sales account) Cost of goods sold 1050000 Fire loss 100000 Inventory 170000 Purchases 980000 (Closed other merchandise accounts)