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Chapter 9: Question 2BE (page 475)

Floyd Corporation has the following four items in its ending inventory. Item Cost Net Realizable Value (NRV) Jokers \(2,000 \)2,100 Penguins 5,000 4,950 Riddlers 4,400 4,625 Scarecrows 3,200 3,830 Determine the following: (a) the LCNRV for each item, and (b) the amount of write-down, if any, using (1) an item-by-item LCNRV evaluation and (2) a total category LCNRV evaluation

Short Answer

Expert verified

The LCNRV for item-by-item basis equals $14,550, and per total category, it equals $14,600.

The written in case of item-by-item basis equals $50, and per total category, it equals $0.

Step by step solution

01

Calculation of LCNRV for item-by-item basis and total category basis

(a) (1 & 2) LCNRV is calculated as follows:

Item

Cost

NRV

LCNRV

Item-by-Item

Total Category

Jokers

$2,000

$2,100

$2,000

Penguins

5,000

4,950

4,950

Riddlers

4,400

4,625

4,400

Scarecrows

3,200

3,830

3,200

Total

$14,600

$15,505

$14,550

$14,600

02

Calculation of amount written down as per the item-by-item basis.

(b) (1)

Amount written down per item-by-item basis is calculated as follows:

AmountWrittenDownasPerItembyItembasis=TotalCost-LCNRVasPerItem-byItembasis=$14,600-$14,550=$50

03

Calculation of amount written down per total category basis

(b) (2)

Amount written down per total category basis is calculated as follows:

Amountwrittendownpertotalcategorybasis=TotalCost-LCNRVasPerTotalCategorybasis=$14,600-$14,600=$0

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Most popular questions from this chapter

Presented below is information related to Waveland Inc. Cost Retail Inventory, 12/31/17 \(250,000 \) 390,000 Purchases 914,500 1,460,000 Purchase returns 60,000 80,000 Purchase discounts 18,000 — Gross sales revenue (after employee discounts) — 1,410,000 Sales returns — 97,500 Markups — 120,000 Markup cancellations — 40,000 Markdowns — 45,000 Markdown cancellations — 20,000 Freight-in 42,000 — Employee discounts granted — 8,000 Loss from breakage (normal) — 4,500 486 Chapter 9 Inventories: Additional Valuation Issues Instructions Assuming that Waveland Inc. uses the conventional retail inventory method, compute the cost of its ending inventory at December 31, 2018.

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Ogala Corporation purchased a significant amount of raw materials inventory for a new product that it is manufacturing. Ogala uses the LCNRV rule for these raw materials. The net realizable value of the raw materials is below the original cost. Ogala uses the FIFO inventory method for these raw materials. In the last 2 years, each purchase has been at a lower price than the previous purchase, and the ending inventory quantity for each period has been higher than the beginning inventory quantity for that period. Instructions (a) At which amount should Ogala’s raw materials inventory be reported on the balance sheet? Why? (b) In general, why is the LCNRV rule used to report inventory? (c) What would have been the effect on ending inventory and cost of goods sold had Ogala used the average-cost inventory method instead of the FIFO inventory method for the raw materials? Why?

The financial statements of M&S are presented in Appendix E. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) How does M&S value its inventories? Which inventory costing method does M&S use as a basis for reporting its inventories? (b) How does M&S report its inventories in the statement of financial position? (c) What costs does M&S include in Inventory and Cost of Sales? (d) What was M&S’s inventory turnover in 2015? What is its gross profit percentage? Evaluate M&S’s inventory turnover and its gross profit percentage.
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