The Gross profit method may be
used to estimate ending inventory
A. For annual financial reporting
purposes
B. For interim financial reporting
purposes
C. If no physical count of inventory is
possible
D. For both B and C
Gross profit method
• Relies on the relationship between Price
(sales); cost and gross profit:
$
as % of
sales cost
• Sales
$150 100
214
• -cost of goods sold $- 70 47
100
• Gross profit
$ 80 53
114
Gross profit method: Sales: $200;
gross profit on sales: 45%
A.
B.
C.
D.
Cost of goods sold:
Cost of goods sold:
Cost of goods sold:
Cost of goods sold:
$90 Gross profit: $110
$62; Gross profit: $138
$110; Gross profit: $90
$138; Gross profit: $62
Gross profit method: Sales: $200;
gross profit on cost: 45%
A.
B.
C.
D.
Cost of goods sold:
Cost of goods sold:
Cost of goods sold:
Cost of goods sold:
$90; Gross profit: $110
$62; Gross profit: $138
$110; Gross profit: $90
$138; Gross profit: $62
E 9-16
• Determine the amount of ending inventory
before the fire
E 9-8
1. Determine the gross profit realized in
2004
2. Determine the ending inventory
The Retail inventory method may be
used to estimate ending inventory
A. For annual financial reporting
purposes
B. For interim financial reporting
purposes
C. If no physical count of inventory is
possible
D. For both B and C
E 9-22 Determine ending inventory
1. Using the conventional retail method
2. Using LIFO retail method
Retail - LIFO
• Makes no sense
• Ignores change in prices – which is what
LIFO is all about.
• Therefore, need to combine Retail method
with $ value method - $value retail LIFO.
$value retail LIFO need to know:
• Beginning inventory at cost and retail
• Purchases at cost and retail
• Cost/Retail Ratios for beginning inventory
and purchases
• Sales at retail
• Price index for beginning inventory (may
have several layers!)
• Price index for purchases.
$value retail LIFO procedure
• Part I: Determine additional layer if any at
base retail
• Same as for basic $ value LIFO method
EXCEPT: done with retail, NOT cost
• Part II: Convert new layer from base to
current prices
• Part III: convert new layer from retail to
cost and add beginning inventory at cost
E 9-27 Determine ending inventory,
using the $ value retail LIFO method for
1.
2.
3.
4.
2003
2004
2005
2006
Problem 9-12 Determine the total
estimated ending inventory using the
LIFO retail inventory method
A. At retail
B. At cost
Problem 9-12 Determine the amount
of shrinkage
A. At retail
B. At cost
Application of the Lower of Cost or
Market method results in
A. The most relevant ending
inventory figure
B. The most reliable ending
inventory figure
C. The most conservative ending
inventory figure
D. Both B and C
Which of the following is considered
the ceiling for LCM purposes?
A.
B.
C.
D.
E.
Cost
Replacement cost
Selling price
Net realizable value
Net realizable value minus
normal profit
Which of the following is considered
the floor for LCM purposes?
A.
B.
C.
D.
E.
Cost
Replacement cost
Selling price
Net realizable value
Net realizable value minus
normal profit
Problem 9-2 Determine the LCM
ending inventory value for
A.
B.
C.
D.
Aluminum siding
Cedar shake siding
Louvered glass doors
Thermal windows
Problem 9-2 Determine the total amount
of loss from write down of inventory to be
recognized in 2004
Answers