9 Inventories: Additional Valuation Issues EXERCISES 9.1
EXERCISES
E9-1 (L01) EXCEL (LCNRV) The inventory of Oheto Company on December 31, 2017, consists of the following items…
Instructions
1. Determine the inventory as of December 31, 2017, by the LCNRV method, applying this method to each item.
2. Determine the inventory by the LCNRV method, applying the method to the total of the inventory.
E9-2 (L01) (LCNRV) Riegel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items.
The inventory at December 31, 2017, consists of products D, E, F, G, H, and I. Relevant per unit data for these products appear below…
Instructions
Using the LCNRV rule, determine the proper unit value for balance sheet reporting purposes at December 31, 2017, for each of the inventory items above.
E9-3 (L01) (LCNRV) Sedato Company follows the practice of pricing its inventory at LCNRV, on an individual-item basis…
Instructions
From the information above, determine the amount of Sedato Company inventory.
E9-4 (L01) (LCNRV—Journal Entries) 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…
Instructions
(a) Prepare the journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method.
(b) Prepare journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual system using the loss method.
(c) Which of the two methods above provides the higher net income in each year?
E9-5 (L01) (LCNRV—Valuation Account) Presented below is information related to Knight Enterprises…
Instructions
(a) From the information, prepare (as far as the data permit) monthly income statements in columnar form for February, March, and April. The inventory is to be shown in the statement at cost; the gain or loss due to market fluctuations is to be shown separately (using a valuation account).
(b) Prepare the journal entry required to establish the valuation account at January 31 and entries to adjust it monthly thereafter.
E9-6 (L01) (LCNRV—Error Effect) LaGreca Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2017, included product X. Relevant per-unit data for product X are as follows…
Instructions
Compute the effect of this error on net income for 2017 and the effect on net income for 2018, and indicate the direction of the misstatement for each year.
E9-7 (L02) (Lower-of-Cost-or-Market) Referring to the inventory data for Sedato Company in E9-3, assume that Sedato follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis…
Instructions
From the information above, determine the amount of Sedato Company inventory.
E9-8 (L02) (Lower-of-Cost-or-Market—Journal Entries) Corrs Company began operations in 2016 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2016, and December 31, 2017. This information is presented below…
Instructions
(a) Prepare the journal entries required at December 31, 2016, and December 31, 2017, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used.
(b) Prepare journal entries required at December 31, 2016, and December 31, 2017, assuming that the inventory is recorded at market under a perpetual system (loss method is used).
(c) Which of the two methods above provides the higher net income in each year?
E9-9 (L03) EXCEL (Relative Sales Value Method) Phil Collins Realty Corporation purchased a tract of unimproved land for $55,000. This land was improved and subdivided into building lots at an additional cost of $34,460. These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follows…
Instructions
At the end of the fiscal year Phil Collins Realty Corporation instructs you to arrive at the net income realized on this operation to date.
E9-10 (L03) (Relative Sales Value Method) During 2017, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of $59,850 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below…
Instructions
What is the amount of gross profit realized during 2017? What is the amount of inventory of unsold straight chairs on December 31, 2017?
E9-11 (L03) (Purchase Commitments) Marvin Gaye Company has been having difficulty obtaining key raw materials for its manufacturing process. The company therefore signed a long-term noncancelable purchase commitment with its largest supplier of this raw material on November 30, 2017, at an agreed price of $400,000. At December 31, 2017, the raw material had declined in price to $365,000.
Instructions
What entry would you make on December 31, 2017, to recognize these facts?
E9-12 (L03) (Purchase Commitments) At December 31, 2017, Indigo Girls Company has outstanding noncancelable purchase commitments for 36,000 gallons, at $3.00 per gallon, of raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower.
Instructions
(a) Assuming that the market price as of December 31, 2017, is $3.30, how would this matter be treated in the accounts and statements? Explain.
(b) Assuming that the market price as of December 31, 2017, is $2.70, instead of $3.30, how would you treat this situation in the accounts and statements?
(c) Give the entry in January 2018, when the 36,000-gallon shipment is received, assuming that the situation given in (b) above existed at December 31, 2017, and that the market price in January 2018 was $2.70 per gallon. Give an explanation of your treatment.
E9-13 (L04) (Gross Profit Method) Each of the following gross profit percentages is expressed in terms of cost.
1. 20%. 3. 331/3%.
2. 25%. 4. 50%.
Instructions
Indicate the gross profit percentage in terms of sales for each of the above.
E9-14 (L04) (Gross Profit Method) Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May…
Instructions
(a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.
E9-15 (L04) (Gross Profit Method) Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Sales are made at 331/3% above cost and totaled $100,000 to March 9. Goods costing $10,900 were left undamaged by the fire; remaining goods were destroyed.
Instructions
(a) Compute the cost of goods destroyed.
(b) Compute the cost of goods destroyed, assuming that the gross profit is 331/3% of sales.
E9-16 (L04) (Gross Profit Method) Wallace Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation’s books disclosed the following…
Instructions
Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage.
