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Chapter 6: Q30PGA_2 (page 368)

Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.

Requirements

2. At what amount should the company report merchandise inventory on the balance sheet?

Short Answer

Expert verified

The ending inventory would be reported at $24,000 on the balance sheet.

Step by step solution

01

Step-by-Step SolutionStep 1: Lower-of-cost-or-net-realizable value approach

As per the lower of cost or net realizable approach, the inventory should be shown at the lowest value among the two. This is because if the adjustment has not been made there would be overvalued gross profit and ending inventory.

02

Inventory value in the balance sheet

As discussed above, the inventory should be shown at the lower value of cost or net realizable value.

In the given case, the cost of the inventory is $97,000. But the net realizable value of the inventory is $24,000.

So, as per the rule, the ending inventory should be shown at $24,000 on the balance sheet.

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Most popular questions from this chapter

Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for\(100 each.

Requirements

1. Prepare Boston Cycle’s perpetual inventory record assuming the company usesthe specific identification inventory costing method. Assume that Boston sold 10bicycles that cost \)42 each and 24 bicycles that cost $68 each.

Discuss some measures that should be taken to maintain control over merchandise inventory.

Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:

Date Item Quantity Unit Cost

Nov. 1 Balance 24 \) 53

6 Sale 20

8 Purchase 30 70

17 Sale 30

30 Sale 2

Requirements

2. Journalize Golf Unlimiteds inventory transactions using the LIFO inventory costingmethod. (Assume purchases and sales are made on account.)

Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.

Requirements

3. At what amount should the company report cost of goods sold on the income statement?

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

4. Which method results in the largest gross profit, and why?
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