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Chapter 9: Q10Q (page 474)

Question:At December 31, 2017, Ashley Co. has outstanding purchase commitments for 150,000 gallons, at \(6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2017, is \)5.90, how would you treat this situation in the accounts?

Short Answer

Expert verified

The company should recognize the unrealized holding gain or loss income of $45,000 at the end of the year.

Step by step solution

01

Step-by-step-solutionStep1:

The unrealized holding gain or loss- income is calculated as follows:

UnrealizedHoldingGainorLoss-Income=TotalUnits×ContractPrice-MarketPrice=150,000×$6.20-$5.90=$45,000

02

Step 2:

The unrealized holding gain or loss- income of $45,000 is recorded by debiting unrealized holding gain or loss- income and crediting estimated liability on purchase commitments by $45,000, respectively.

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Most popular questions from this chapter

In its 2015 annual report, Gap Inc. reported inventory of \(1,889 million on January 31, 2015, and \)1,928 million on February 1, 2014, cost of goods sold of \(10,146 million for 2015, and net sales of \)16,435 million. Compute Gap’s inventory turnover and the average days to sell inventory for the fiscal year 2015

Question:What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss

Dover Company began operations in 2017 and determined its ending inventory at cost and at LCNRV at December 31, 2017, and December 31, 2018. This information is presented below. Cost Net Realizable Value 12/31/17 \(346,000 \)322,000 12/31/18 410,000 390,000Prepare the journal entries required at December 31, 2017, and December 31, 2018, assuming that the inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method is used. (b) Prepare journal entries required at December 31, 2017, and December 31, 2018, assuming that the inventory is recorded at cost and a perpetual system using the loss method is used. (c) Which of the two methods above provides the higher net income in each year?

Presented below is information related to Ricky Henderson Company. Cost Retail Beginning inventory \( 200,000 \) 280,000 Purchases 1,375,000 2,140,000 Markups 95,000 Markup cancellations 15,000 Markdowns 35,000 Markdown cancellations 5,000 Sales revenue 2,200,000 Instructions Compute the inventory by the conventional retail inventory method.

Boyne Inc. had beginning inventory of \(12,000 at cost and \)20,000 at retail. Net purchases were \(120,000 at cost and \)170,000 at retail. Net markups were \(10,000, net markdowns were \)7,000, and sales revenue was $147,000. Compute ending inventory at cost using the conventional retail method
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