Group Work Chapter 9
1.
Ending Inventory values for Hunt Inc. were as follows on December 31, 2014.
Cost
Market
$120,000
Replacement Cost $110,000
NRV
$116,000
NRV-Normal Profit $112,000
What would be the adjusting entry at December 31, 2014 to account for inventory at the lower of
cost or market using the Allowance Method?
Loss on Decline of Inventory
$8,000
Allowance for Decline of Inventory Value
2.
$8,000
At December 31, 2014 Ending Inventory value for Hunt Inc. were the following:
Cost
Market
$84,000
Replacement Cost
$80,000
Net Realizable Value $98,000
NRV – Normal Profit $82,000
Also assume at December 31, 2014, there is an $8,000 credit balance in the Allowance to
Reduce Inventory to Market account. What would be the journal entry to apply the LCM rule to
inventory using the Allowance method?
Allowance for Invent
Value
$8,000
Adjustment
$6,000
$2,000
Target
Balance
Allowance for Decline of Inventory Value $6,000
Gain on Recovery of Inventory Value
$6,000
3.
Fisher Inc. estimates its Ending Inventory using the Gross Profit Method for use in its monthly
financial statements. The following account balances are available:
Inventory, June 1, 2014
$125,000
Purchases
$232,000
Purchase Returns
$ 15,000
Freight In
$ 8,500
Sales during June
$415,000
Assume Fisher Inc. estimates Ending Inventory based on an average Percentage Markup on
Cost of 38%. What would be the estimate at June 30, 2014 for
a) Cost of Goods Sold
b) Ending Inventory
0.38
1.38
Beginning Inventory
Purchases
Purchase Returns
Freight In
Goods Available for Sale
$125,000
$232,000
($15,000)
$ 8,500
$350,500
CGS
Ending Inventory
($298,800)
$ 51,700
=
.275 = 28%
Sales
$415,000
CGS
($298,800)
Gross Profit $116,200
28%
4.
Assume the following information for XYZ Inc. as of December 31, 2014.
Inventory, January 1, 2014
Purchases
Freight-In
Net Markups
Net Markdowns
Spoilage
Sales
Cost
$26,000
$72,000
$ 4,200
Retail
$ 52,000
$106,000
$ 15,000
$ 6,500
$ 2,500
$ 98,000
Estimate Ending Inventory and Cost of Goods Sold using each of the following methods for
the period shown:
a)
Conventional Retail Method (LCM Method)
b)
LIFO Retail Method
c)
Assume the Prior Year Index is 100%, and the Current Year Index is 104%. Find EI
and CGS using the Dollar Value LIFO Retail Method.
d)
Assume the following information for Year 2015:
Ending Inventory at Retail is
Current Year Price Index is
Current Year Cost to Retail Ratio
$71,500
1.07
63%
What would be the estimate of Ending Inventory at Cost in 2015 using the Dollar
Value LIFO Retail Method?
Cost
Retail
a. Convential Retail Method
Beginning Inventory
Purchases
Freight In
Net MarkUps
Goods Available for Sale With Beginning Inventory
Net MarkDowns
Spoilage
Sales
Estimated Ending Inventory @ Retail
Estimated Ending Inventory @ Cost
Cost of Goods Sold
$26,000
$72,000
$4,200
$52,000
$106,000
$15,000
$173,000
$102,200
Ratio = 59%
($6,500)
($2,500)
($98,000)
$66,000
$38,940
$63,260
*
* $66,000 * .59 = $38,940
b. LIFO Retail Method
Beginning Inventory
Purchases
Freight In
Net MarkUps
Net MarkDowns
Goods Available for Sale Without Beginning
Inventory
Goods Available for Sale With Beginning Inventory
Spoilage
Sales
Estimated Ending Inventory @ Retail
Estimated Ending Inventory @ Cost
Cost of Goods Sold
* $66,000
$52,000 * .50 = $26,000
$14,000 * .67 = $ 9,380
$26,000 + $9,380 = $35,380
$26,000
$72,000
$4,200
$52,000
$106,000
PY Ratio = 50%
$15,000
($6,500)
$76,200
$114,500
$102,200
$166,500
($2,500)
($98,000)
$66,000
$35,380
$66,820
*
CY Ratio = 67%
c. Dollar Value LIFO Retail Method
Beginning Inventory
Purchases
Freight In
Net MarkUps
Net MarkDowns
Goods Available for Sale Without Beginning
Inventory
Goods Available for Sale With Beginning Inventory
Spoilage
Sales
Estimated Ending Inventory @ Retail
Estimated Ending Inventory @ Cost
Cost of Goods Sold
* $66,000 / 1.04 = $63,462
$63,462
$52,000 * .50 * 1.00 = $26,000
$11,462 * .67 * 1.04 = $7,987
$26,000 + $7,933 = $33,987
d. Dollar Value LIFO Retail Method - The Next Year
* $71,500 / 1.07 = $66,822
$66,822
$52,000 * .50 * 1.00 = $26,000
$11,462 * .67 * 1.04 = $7,987
$3,360 * .63 * 1.07 = $2,265
$26,000 + $7,933 + $2,265 = $36,252
Ending Inventory at Cost = $36,252
$26,000
$72,000
$4,200
$52,000
$106,000
PY Ratio = 50%
$15,000
($6,500)
$76,200
$114,500
$102,200
$166,500
($2,500)
($98,000)
$66,000
$33,987
$68,213
*
CY Ratio = 67%