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Chapter 9: Q7Q (page 474)

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Net realizable value 14.50 19.20 15.20 10.40 16.40 Net realizable value less normal profit 12.80 17.60 13.75 8.80 14.80 Market (replacement cost) 14.80 17.20 12.80 9.70 16.80

Short Answer

Expert verified

The inventory price for Case 1 equals $14.50, Case 2 equals $16.10, Case 3 equals $13.75, case 4 equals $9.70, and Case 5 equals $15.90.

Step by step solution

01

Step-by-step-solutionStep1

The designated market value of the inventory is determined as follows:

Cases

Net realizable value

Net realizable value less normal profit

Replacement cost

Designated market value

Case 1

$14.50

$12.80

$14.80

$14.50

Case 2

19.20

17.60

17.20

17.60

Case 3

15.20

13.75

12.80

13.75

Case 4

10.40

8.80

9.70

9.70

Case 5

$16.40

$14.80

$16.80

$16.40

02

Step 2:

The inventory price as per the lower-of-cost-or-market-value method is determined as follows:

Cases

Cost

Designated market value

Lower-of-cost-or-market-value

Case 1

$15.90

$14.50

$14.50

Case 2

16.10

17.60

16.10

Case 3

15.90

13.75

13.75

Case 4

15.90

9.70

9.70

Case 5

$15.90

$16.40

$15.90

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Most popular questions from this chapter

Keller Company began operations on January 1, 2016, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2016 and, because there was no beginning inventory, its ending inventory for 2016 of \(38,100 would have been the same under either the conventional retail system or the LIFO retail system. On December 31, 2017, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2017, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level. Cost Retail Inventory, Jan. 1, 2017 \) 38,100 $ 60,000 Markdowns (net) 13,000 Markups (net) 22,000 Purchases (net) 130,900 178,000 Sales (net) 167,000 Instructions Determine the cost of the 2017 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method

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.

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

The net realizable value of Lake Corporation’s inventory has declined below its cost. Allyn Conan, the controller, wants to use the loss method to write down inventory because it more clearly discloses the decline in the net realizable value and does not distort the cost of goods sold. His supervisor, financial vice president Bill Ortiz, prefers the costof-goods-sold method to write down inventory because it does not call attention to the decline in net realizable value. Instructions Answer the following questions. (a) What, if any, is the ethical issue involved? (b) Is any stakeholder harmed if Bill Ortiz’s preference is used? (c) What should Allyn Conan do?

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases using LCNRV. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Sales value 14.80 19.20 15.20 10.40 17.80 Estimated cost to complete 1.50 1.90 1.65 .80 1.00 Estimated cost to sell .50 .70 .55 .40 .60

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