On January 20, 2011, the records of the Stewart Company revealed the following information:
Inventory, July 1, 2010 ............. $ 53,600
Purchases, July 1, 2010'January 20, 2011 ....... 368,000
Sales, July 1, 2010'January 20, 2011 ......... 583,000
Purchases returns ................. 11,200
Purchases discounts taken ............ $5,800
Freight in .................... 3,800
Sales returns .................. 6,600
A fire destroyed the entire inventory on January 20, 2011 except for purchases in transit, FOB shipping point of $6,000, and goods having a selling price of $4,700 that were salvaged from the fire. The salvaged goods had an estimated salvage value of $2,900. The average gross profit on net sales in previous periods was 40%.
Required:
1. Compute the cost of the inventory lost in the fire.
2. If a company discloses that it uses a periodic inventory system, what concerns might you have about its interim financial statements?