Brief Exercise 9-1
Presented below is information related to Metlock Inc.’s inventory.
(per unit)
Skis
Historical cost
Boots
Parkas
$427.50
$238.50
$119.25
Selling price
477.00
326.25
165.94
Cost to sell
42.75
18.00
5.63
Cost to complete
72.00
65.25
47.81
Determine the following: the net realizable value for each item, and the carrying value of each item
under LCNRV.
Item
Skis
Cost
NRV
$
LCNRV
$
$
427.5
362.25
362.25
Boots
238.5
243
238.5
Parkas
119.25
112.5
112.5
Brief Exercise 9-2
Crane Corporation has the following four items in its ending inventory.
Item
Jokers
Cost
Net Realizable
Value (NRV)
$2,440
$2,562
Penguins
6,100
6,039
Riddlers
5,368
5,643
Scarecrows
3,904
4,673
Determine the following the LCNRV for each item.
Item
Jokers
LCNRV
$
2,440
Penguins
6,039
Riddlers
5,368
3,904
Scarecrows
Item
Cost
NRV
LCNRV
$2,440
$2,562
$2,440
Penguins
6,100
6,039
6,039
Riddlers
5,368
5,643
5,368
Scarecrows
3,904
4,673
3,904
$17,812 $18,917
$17,751
Item-by-item
Jokers
Total
(1) Determine the amount of write-down, if any, using an item-by-item LCNRV evaluation. (If no
write-down, enter 0 for the amounts.)
Item
Write-down
$
Jokers
0
Penguins
61
Riddlers
0
Scarecrows
0
(2) Determine a total category LCNRV evaluation. (If no write-down, enter 0 for the amount.)
$
Total category LCNRV
0
(2) None on a whole group: $18,917 > $17,812.
Brief Exercise 9-4
Presented below is information related to Indigo Inc.’s inventory, assuming Indigo uses lower-ofLIFO cost-or-market.
(per unit)
Historical cost
Selling price
Cost to distribute
Skis
Boots
Parkas
$269.80
$150.52
$75.26
301.04
205.90
104.73
26.98
11.36
3.55
Current replacement cost
Normal profit margin
288.26
149.10
72.42
45.44
41.18
30.18
Determine the following:
(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lowerof-cost-or-market computation for skis.
Ceiling Limit
Floor Limit
$
274.06
$
228.62
(b) The cost amount that should be used in the lower-of-cost-or-market comparison of boots.
The cost amount
$
150.52
(c) The market amount that should be used to value parkas on the basis of the lower-of-cost-ormarket.
The market amount
$
72.42
Brief Exercise 9-5
Stellar Inc. uses LIFO inventory costing. At January 1, 2017, inventory was $211,649 at both cost
and market value. At December 31, 2017, the inventory was $287,776 at cost and $269,210 at
market value.
Prepare the necessary December 31 entry under (a) the cost-of-goods-sold method (b) Loss
method. (Credit account titles are automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No entry" for the account titles and enter 0 for the
amounts.)
No. Account Titles and Explanation
(a)
Cost of Goods S
Debit
18566
Allowance to Re
(b)
Loss Due to Mar
Allowance to Re
Credit
18566
18566
18566
Brief Exercise 9-6
Oriole, Inc. buys 1,200 computer game CDs from a distributor who is discontinuing those games.
The purchase price for the lot is $9,600. Oriole will group the CDs into three price categories for
resale, as indicated below.
Group No. of CDs Price per CD
1
2
3
100
1,000
100
$7
13
20
Determine the cost per CD for each group, using the relative sales value method. (Do not round
ratios for computational purposes. Round final answers to 2 decimal places, e.g. 5.85.)
Group
1
2
3
Group
Cost per CD
$
4.28
$
7.95
$
12.23
Number of
CDs
Sales Price
per CD
Total
Sales
Price
Relative
Sales
Price
7/157*
1
100
$7
$700
2
1,000
$13
13,000
3
100
$20
2,000
$15,700
*
Total
Cost
Cost
Allocated
to CDs
Cost per
CD
x $9,600 = $428
$4.28**
130/157
x $9,600 = 7,949
$7.95
20/157
x $9,600 = 1,223
$12.23
$9,600
$700/$15,700 = 7/157
$428/100 = $4.28
**
Brief Exercise 9-9
Blue Corporation’s April 30 inventory was destroyed by fire. January 1 inventory was $157,800,
and purchases for January through April totaled $544,900. Sales revenue for the same period were
$711,600. Blue’s normal gross profit percentage is 25% on sales.
Using the gross profit method, estimate Blue’s April 30 inventory that was destroyed by fire.
Estimated ending inventory destroyed in fire
$
169000
Beginning inventory
Purchases
Cost of goods available
Sales revenue
Less gross profit (25% x 711,600)
$157,800
544,900
702,700
$711,600
177,900
Estimated cost of goods sold
533,700
$169,00
0
Estimated ending inventory destroyed in fire
Brief Exercise 9-10
Cullumber Inc. had beginning inventory of $11,400 at cost and $20,600 at retail. Net purchases
were $127,926 at cost and $181,000 at retail. Net markups were $9,500, net markdowns were
$6,900, and sales revenue was $148,900. Compute ending inventory at cost using the conventional
retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final
answer to 0 decimal places, e.g. 28,987.)
$
Ending inventory using the conventional retail method
Beginning inventory
Net purchases
Net markups
Totals
Deduct:
Net markdowns
Sales revenue
Ending inventory at retail
36498
Cost
Retail
$11,400
127,926
$20,600
181,000
9,500
$139,326
211,100
6,900
148,900
$ 55,300
Cost-to-retail ratio: $139,326 ÷ $211,100 = 66%
Ending inventory at lower-of cost-or-market (66% x $55,300) = $36,498
Exercise 9-2
Vaughn 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.
Item D
Item E
Item F
Item G
Item H
Item I
$130
$119
$103
$97
$119
$97
Cost
81
86
86
86
54
39
Cost to complete
32
32
27
38
32
32
Selling costs
11
19
11
22
11
22
Estimated selling price
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.
Item D
Item E
Item F
Item G
Item H
Item I
$
81
$
68
$
65
$
37
$
54
$
39
Exercise 9-7
Indigo Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an
individual-item basis.
Estimated
Selling Price
Cost of
Completion and
Disposal
Item
Cost per
No. Quantity
Unit
Cost to
Replace
Normal
Profit
1320
1,500
$3.36
$3.15
$4.73
$0.37
$1.31
1333
1,200
2.84
2.42
3.68
0.53
0.53
1426
1,100
4.73
3.89
5.25
0.42
1.05
1437
1,300
3.78
3.26
3.36
0.26
0.95
1510
1,000
2.36
2.10
3.41
0.84
0.63
1522
800
3.15
2.84
3.99
0.42
0.53
1573
3,300
1.89
1.68
2.63
0.79
0.53
1626
1,300
4.94
5.46
6.30
0.53
1.05
From the information above, determine the amount of Indigo Company inventory.
$
The amount of Indigo Company’s
inventory
Item
No.
Cost
per
Unit
1320 $3.36
1333 2.84
1426 4.73
1437 3.78
1510 2.36
1522 3.15
1573 1.89
1626 4.94
Replacement
Cost
$3.15
2.42
3.89
3.26
2.10
2.84
1.68
5.46
32676
Net
Realizable
Value
Net Real.
Value
Designated
Less Normal
Market
Profit
Value
Quantity
$4.36*
3.15
4.83
3.10
2.57
3.57
1.84
5.77
$3.05**
2.62
3.78
2.15
1.94
3.04
1.31
4.72
$3.15
2.62
3.89
3.10
2.10
3.04
1.68
5.46
Final
Inventory
Value
1,500 $ 4,725
1,200
3,144
1,100
4,279
1,300
4,030
1,000
2,100
800
2,432
3,300
5,544
1,300
6,422***
$32,676
*$4.73 – $0.37 = $4.36.
**$4.36 – $1.31 = $3.05.
***Cost is used because it is lower than designated market value.
Exercise 9-10
During 2017, Ivanhoe Furniture Company purchases a carload of wicker chairs. The manufacturer
sells the chairs to Ivanhoe for a lump sum of $54,200 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.
Type
No. of Chairs
Estimated Selling
Price Each
Lounge chairs
400
$90
Armchairs
300
80
Straight chairs
800
50
During 2017, Ivanhoe sells 150 lounge chairs, 120 armchairs, and 120 straight chairs.
What is the amount of gross profit realized during 2017? What is the amount of inventory of
unsold straight chairs on December 31, 2017? (Round cost per chair to 2 decimal places, e.g.
78.25 and final answer to 0 decimal places, e.g. 5,845.)
$
Gross profit realized
during 2017
13312.8
$
Amount of inventory of
unsold straight chairs
Sales
No. Price
of
per
Chairs Chairs Chair
Lounge
400
chairs
Lounge
300
chairs
Straight
800
chairs
Chairs
18428
Total
Sales
Price
Relative
Sales Price
Total
Cost
Cost
Cost
Allocated per
to Chairs Chair
$90
$36,000
$36,000/$100,000 x $54,200 $19,512
$48.78
80
24,000
$24,000/$100,000 x 54,200 13,008
43.36
50
40,000
$40,000/$100,000 x 54,200 21,680
27.10
$100,000
$54,200
Number of Cost per Cost of
Chairs Sold Chair Chairs Sold
Lounge chairs
Armchairs
Straight chairs
150
120
120
$48.78
43.36
27.10
Sales
Gross
Profit
$7,317 $13,500 $ 6,183
5,203
9,600
4,397
3,252
6,000
2,748
$15,772 $29,100 $13,328
Inventory of straight chairs
(800 – 120) x $27.10 = $18,428.
Exercise 9-16
Sheffield 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.
Beginning inventory
Purchases for the year
Purchase returns
$160,900
Sales revenue
382,100
Sales returns
30,900
Rate of gross profit on net sales
$608,500
24,300
30 %
Merchandise with a selling price of $22,700 remained undamaged after the fire. Damaged
merchandise with an original selling price of $14,600 had a net realizable value of $5,500.
Compute the amount of the loss as a result of the fire, assuming that the corporation had no
insurance coverage.
Amount of the loss
$
81770
Beginning inventory
Purchases
$160,900
382,100
543,000
(30,900)
Purchase returns
Goods available (at cost)
Sales revenue
Sales returns
512,100
$608,500
(24,300)
Net sales
Less: Gross profit (30% x $584,200)
584,200
(175,260)
408,940
Estimated ending inventory (unadjusted for damage)
Less: Goods on hand—undamaged (at cost) $22,700 x (1 – 30%)
Less: Goods on hand—damaged (at net realizable value)
103,160
(15,890)
(5,500)
Fire loss on inventory
$81,770
Exercise 9-21
Presented below is information related to Ivanhoe Company.
Cost
Retail
Beginning inventory
$295,812
$275,000
Purchases
1,398,000
2,137,000
Markups
94,000
Markup cancellations
15,100
Markdowns
37,900
Markdown cancellations
4,800
Sales revenue
2,238,000
Compute the inventory by the conventional retail inventory method. (Round ratios for
computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g.
28,987.)
Ending inventory using conventional retail inventory method
Cost
Beginning inventory
Purchases
$295,812
1,398,000
$
149464
Retail
$275,000
2,137,000
Add:
Totals
Net markups
Markups
Markup cancellations
Totals
1,693,812
2,412,000
$94,000
(15,100)
$1,693,812
Deduct: Net markdowns
Markdowns
Markdowns cancellations
78,900
2,490,900
37,900
(4,800)
33,100
Sales price of goods available
Deduct: Sales revenue
2,457,800
2,238,000
Ending inventory at retail
$219,800
Cost-to-retail ratio
=
$1,693,812
$2,490,900
= 68%
Ending inventory at cost = 68% x $219,800 = $149,464