Retail Inventory Method & LCM
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- June Bailey
- 8 years ago
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1 Professor Authored Problem Solutions Intermediate Accounting 2 Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio = CGS Avg inventory = 160,000 20,000 = 8.0 Days sales in EI = Avg inventory (CGS 365) = 20,000 (160, ) = 20, = AR turnover ratio = Sales Avg AR = 270,000 66,000 = Average collection period = Avg AR (Sales 365) = 66,000 (270, ) = 66, =
2 Solution to Problem 68 Retail Inventory retail Beginning inventory $10,500 $42,000 Purchases (gross) 465, ,000 Freight in 12, Markups ,000 Markdowns ,000 Good available for sale 487, ,000 Sales (net) ,000 Sales discounts --- 7,000 Ending retail 145,000 We need to subtract gross. If sales is listed at gross, we ignore sales discounts. If sales is listed at net, we add sales discounts to sales@net to get gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465, ,000) (892, ,000! 112,000) = FIFO cost = 145,000 * = 83,131 CGS = 487,500 83,131 = 484, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10, , ,000) (42, , ,000! 112,000) = WA cost = 145,000 * = 80,878 CGS = 487,500 80,878 = 406,
3 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10, , ,000) (42, , ,000) = WALCM cost = 145,000 * = 71,691 CGS = 487,500 71,691 = 415, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465, ,000) (892, ,000) = FIFOLCM cost = 145,000 * = 73,268 CGS = 487,500 73,268 = 414,
4 1. FIFO basis Solution to HW 69 Retail inventory retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52, Markups ,000 Markdowns ,000 Good available for sale 735,320 1,101,771 Sales gross) ,432 Sales discounts ,000 Ending retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631, ,000) (1,079, ,000! 146,000) = FIFO cost = 123,339 * = 83,797 CGS = 735,320 83,797 = 651, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52, , ,000) (96, ,079, ,000! 146,000) = WA cost = 123,339 * = 82,316 CGS = 735,320 82,316 = 651,
5 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52, , ,000) (96, ,079, ,000) = WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631, ,000) (1,079, ,000) = FIFOLCM cost = 123,339* = 73,164 CGS = 735,320 73,164 = 662,
6 Solution to HW 70 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A B C D E F What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A B ,250 C D ,575 E F ,613 6, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest market replacement acceptable acceptable Item # units cost/unit cost/unit cost / unit NRV NRV π A B C D E F
7 12/31/14 Cost of goods sold expense 15 Inventory 15 adjustment for C (150 units * 0.10 / unit) 12/31/14 Cost of goods sold expense Inventory adjustment for D (450 units * 0.05 / unit) 12/31/14 Cost of goods sold expense 75 Inventory 75 adjustment for F (375 units * 0.20 / unit) Total adjusted value for inventory Balance before adjustment 6, Write-down Adjusted balance 6,
8 Solution to HW 71 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A % B % C % D % E % F % 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A ,720 B ,910 C ,735 D ,650 E ,683 F ,365 37, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest replacement acceptable acceptable Item # units cost / unit market / unit cost / unit NRV NRV π A B C D E F
9 12/31/14 Cost of goods sold expense 154 Inventory 154 adjustment for B (200 units * 0.77 / unit) 12/31/14 Cost of goods sold expense 570 Inventory 570 adjustment for C (300 units * 1.90 / unit) 12/31/14 Cost of goods sold expense 4,172 Inventory 4,172 adjustment for E (810 units * 5.15 / unit) Total adjusted value for inventory Balance before adjustment 37,063 Write-down 4,896 Adjusted balance 32,
10 Solution to HW 72 Lower of cost or market Actual cost $14 Estimated selling price Normal profit margin on selling price % Estimated cost to sell Replacement Cost What is the ceiling of the acceptable range? 8 = What is the floor of the acceptable range? 7 = 8 0.1*10 3. What is the market? 8 = Replacement cost is outside range, the ceiling is closes acceptable amount 4. What is LCM? 8 = historical cost of 14 is higher than market of 8 Solution to HW 73 Lower of cost or market highest lowest necessary replacement acceptable acceptable Item hist cost market adjustment cost NRV NRV π Aluminum 70,000 56,000 14,000 62,500 56,000 50,900 Cedar shake 86,000 79,400 6,600 79,400 84,800 77,400 Louverd gl 112, , , , ,800 Thermal W 140, ,000 12, , , ,600 32,600 If using the direct write-down method as used in class, the necessary adjustment is: 12/31 Cost of goods sold expense 32,600 Inventory 32,600 If using the allowance method as explained in the textbook, the necessary adjustment is: 12/31 Cost of goods sold expense 5,100 Allowance 5,
11 Professor Authored Problem Solutions Intermediate Accounting 2 Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio = CGS Avg inventory = 160,000 20,000 = 8.0 Days sales in EI = Avg inventory (CGS 365) = 20,000 (160, ) = 20, = AR turnover ratio = Sales Avg AR = 270,000 66,000 = Average collection period = Avg AR (Sales 365) = 66,000 (270, ) = 66, =
12 Solution to Problem 68 Retail Inventory retail Beginning inventory $10,500 $42,000 Purchases (gross) 465, ,000 Freight in 12, Markups ,000 Markdowns ,000 Good available for sale 487, ,000 Sales (net) ,000 Sales discounts --- 7,000 Ending retail 145,000 We need to subtract gross. If sales is listed at gross, we ignore sales discounts. If sales is listed at net, we add sales discounts to sales@net to get gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465, ,000) (892, ,000! 112,000) = FIFO cost = 145,000 * = 83,131 CGS = 487,500 83,131 = 484, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10, , ,000) (42, , ,000! 112,000) = WA cost = 145,000 * = 80,878 CGS = 487,500 80,878 = 406,
13 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10, , ,000) (42, , ,000) = WALCM cost = 145,000 * = 71,691 CGS = 487,500 71,691 = 415, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465, ,000) (892, ,000) = FIFOLCM cost = 145,000 * = 73,268 CGS = 487,500 73,268 = 414,
14 1. FIFO basis Solution to HW 69 Retail inventory retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52, Markups ,000 Markdowns ,000 Good available for sale 735,320 1,101,771 Sales gross) ,432 Sales discounts ,000 Ending retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631, ,000) (1,079, ,000! 146,000) = FIFO cost = 123,339 * = 83,797 CGS = 735,320 83,797 = 651, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52, , ,000) (96, ,079, ,000! 146,000) = WA cost = 123,339 * = 82,316 CGS = 735,320 82,316 = 651,
15 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52, , ,000) (96, ,079, ,000) = WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631, ,000) (1,079, ,000) = FIFOLCM cost = 123,339* = 73,164 CGS = 735,320 73,164 = 662,
16 Solution to HW 70 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A B C D E F What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A B ,250 C D ,575 E F ,613 6, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest market replacement acceptable acceptable Item # units cost/unit cost/unit cost / unit NRV NRV π A B C D E F
17 12/31/14 Cost of goods sold expense 15 Inventory 15 adjustment for C (150 units * 0.10 / unit) 12/31/14 Cost of goods sold expense Inventory adjustment for D (450 units * 0.05 / unit) 12/31/14 Cost of goods sold expense 75 Inventory 75 adjustment for F (375 units * 0.20 / unit) Total adjusted value for inventory Balance before adjustment 6, Write-down Adjusted balance 6,
18 Solution to HW 71 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A % B % C % D % E % F % 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A ,720 B ,910 C ,735 D ,650 E ,683 F ,365 37, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest replacement acceptable acceptable Item # units cost / unit market / unit cost / unit NRV NRV π A B C D E F
19 12/31/14 Cost of goods sold expense 154 Inventory 154 adjustment for B (200 units * 0.77 / unit) 12/31/14 Cost of goods sold expense 570 Inventory 570 adjustment for C (300 units * 1.90 / unit) 12/31/14 Cost of goods sold expense 4,172 Inventory 4,172 adjustment for E (810 units * 5.15 / unit) Total adjusted value for inventory Balance before adjustment 37,063 Write-down 4,896 Adjusted balance 32,
20 Solution to HW 72 Lower of cost or market Actual cost $14 Estimated selling price Normal profit margin on selling price % Estimated cost to sell Replacement Cost What is the ceiling of the acceptable range? 8 = What is the floor of the acceptable range? 7 = 8 0.1*10 3. What is the market? 8 = Replacement cost is outside range, the ceiling is closes acceptable amount 4. What is LCM? 8 = historical cost of 14 is higher than market of 8 Solution to HW 73 Lower of cost or market highest lowest necessary replacement acceptable acceptable Item hist cost market adjustment cost NRV NRV π Aluminum 70,000 56,000 14,000 62,500 56,000 50,900 Cedar shake 86,000 79,400 6,600 79,400 84,800 77,400 Louverd gl 112, , , , ,800 Thermal W 140, ,000 12, , , ,600 32,600 If using the direct write-down method as used in class, the necessary adjustment is: 12/31 Cost of goods sold expense 32,600 Inventory 32,600 If using the allowance method as explained in the textbook, the necessary adjustment is: 12/31 Cost of goods sold expense 5,100 Allowance 5,
21 Professor Authored Problem Solutions Intermediate Accounting 2 Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio = CGS Avg inventory = 160,000 20,000 = 8.0 Days sales in EI = Avg inventory (CGS 365) = 20,000 (160, ) = 20, = AR turnover ratio = Sales Avg AR = 270,000 66,000 = Average collection period = Avg AR (Sales 365) = 66,000 (270, ) = 66, =
22 Solution to Problem 68 Retail Inventory retail Beginning inventory $10,500 $42,000 Purchases (gross) 465, ,000 Freight in 12, Markups ,000 Markdowns ,000 Good available for sale 487, ,000 Sales (net) ,000 Sales discounts --- 7,000 Ending retail 145,000 We need to subtract gross. If sales is listed at gross, we ignore sales discounts. If sales is listed at net, we add sales discounts to sales@net to get gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465, ,000) (892, ,000! 112,000) = FIFO cost = 145,000 * = 83,131 CGS = 487,500 83,131 = 484, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10, , ,000) (42, , ,000! 112,000) = WA cost = 145,000 * = 80,878 CGS = 487,500 80,878 = 406,
23 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10, , ,000) (42, , ,000) = WALCM cost = 145,000 * = 71,691 CGS = 487,500 71,691 = 415, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465, ,000) (892, ,000) = FIFOLCM cost = 145,000 * = 73,268 CGS = 487,500 73,268 = 414,
24 1. FIFO basis Solution to HW 69 Retail inventory retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52, Markups ,000 Markdowns ,000 Good available for sale 735,320 1,101,771 Sales gross) ,432 Sales discounts ,000 Ending retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631, ,000) (1,079, ,000! 146,000) = FIFO cost = 123,339 * = 83,797 CGS = 735,320 83,797 = 651, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52, , ,000) (96, ,079, ,000! 146,000) = WA cost = 123,339 * = 82,316 CGS = 735,320 82,316 = 651,
25 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52, , ,000) (96, ,079, ,000) = WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631, ,000) (1,079, ,000) = FIFOLCM cost = 123,339* = 73,164 CGS = 735,320 73,164 = 662,
26 Solution to HW 70 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A B C D E F What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A B ,250 C D ,575 E F ,613 6, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest market replacement acceptable acceptable Item # units cost/unit cost/unit cost / unit NRV NRV π A B C D E F
27 12/31/14 Cost of goods sold expense 15 Inventory 15 adjustment for C (150 units * 0.10 / unit) 12/31/14 Cost of goods sold expense Inventory adjustment for D (450 units * 0.05 / unit) 12/31/14 Cost of goods sold expense 75 Inventory 75 adjustment for F (375 units * 0.20 / unit) Total adjusted value for inventory Balance before adjustment 6, Write-down Adjusted balance 6,
28 Solution to HW 71 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A % B % C % D % E % F % 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A ,720 B ,910 C ,735 D ,650 E ,683 F ,365 37, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest replacement acceptable acceptable Item # units cost / unit market / unit cost / unit NRV NRV π A B C D E F
29 12/31/14 Cost of goods sold expense 154 Inventory 154 adjustment for B (200 units * 0.77 / unit) 12/31/14 Cost of goods sold expense 570 Inventory 570 adjustment for C (300 units * 1.90 / unit) 12/31/14 Cost of goods sold expense 4,172 Inventory 4,172 adjustment for E (810 units * 5.15 / unit) Total adjusted value for inventory Balance before adjustment 37,063 Write-down 4,896 Adjusted balance 32,
30 Solution to HW 72 Lower of cost or market Actual cost $14 Estimated selling price Normal profit margin on selling price % Estimated cost to sell Replacement Cost What is the ceiling of the acceptable range? 8 = What is the floor of the acceptable range? 7 = 8 0.1*10 3. What is the market? 8 = Replacement cost is outside range, the ceiling is closes acceptable amount 4. What is LCM? 8 = historical cost of 14 is higher than market of 8 Solution to HW 73 Lower of cost or market highest lowest necessary replacement acceptable acceptable Item hist cost market adjustment cost NRV NRV π Aluminum 70,000 56,000 14,000 62,500 56,000 50,900 Cedar shake 86,000 79,400 6,600 79,400 84,800 77,400 Louverd gl 112, , , , ,800 Thermal W 140, ,000 12, , , ,600 32,600 If using the direct write-down method as used in class, the necessary adjustment is: 12/31 Cost of goods sold expense 32,600 Inventory 32,600 If using the allowance method as explained in the textbook, the necessary adjustment is: 12/31 Cost of goods sold expense 5,100 Allowance 5,
31 Professor Authored Problem Solutions Intermediate Accounting 2 Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio = CGS Avg inventory = 160,000 20,000 = 8.0 Days sales in EI = Avg inventory (CGS 365) = 20,000 (160, ) = 20, = AR turnover ratio = Sales Avg AR = 270,000 66,000 = Average collection period = Avg AR (Sales 365) = 66,000 (270, ) = 66, =
32 Solution to Problem 68 Retail Inventory retail Beginning inventory $10,500 $42,000 Purchases (gross) 465, ,000 Freight in 12, Markups ,000 Markdowns ,000 Good available for sale 487, ,000 Sales (net) ,000 Sales discounts --- 7,000 Ending retail 145,000 We need to subtract gross. If sales is listed at gross, we ignore sales discounts. If sales is listed at net, we add sales discounts to sales@net to get gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465, ,000) (892, ,000! 112,000) = FIFO cost = 145,000 * = 83,131 CGS = 487,500 83,131 = 484, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10, , ,000) (42, , ,000! 112,000) = WA cost = 145,000 * = 80,878 CGS = 487,500 80,878 = 406,
33 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10, , ,000) (42, , ,000) = WALCM cost = 145,000 * = 71,691 CGS = 487,500 71,691 = 415, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465, ,000) (892, ,000) = FIFOLCM cost = 145,000 * = 73,268 CGS = 487,500 73,268 = 414,
34 1. FIFO basis Solution to HW 69 Retail inventory retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52, Markups ,000 Markdowns ,000 Good available for sale 735,320 1,101,771 Sales gross) ,432 Sales discounts ,000 Ending retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631, ,000) (1,079, ,000! 146,000) = FIFO cost = 123,339 * = 83,797 CGS = 735,320 83,797 = 651, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52, , ,000) (96, ,079, ,000! 146,000) = WA cost = 123,339 * = 82,316 CGS = 735,320 82,316 = 651,
35 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52, , ,000) (96, ,079, ,000) = WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631, ,000) (1,079, ,000) = FIFOLCM cost = 123,339* = 73,164 CGS = 735,320 73,164 = 662,
36 Solution to HW 70 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A B C D E F What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A B ,250 C D ,575 E F ,613 6, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest market replacement acceptable acceptable Item # units cost/unit cost/unit cost / unit NRV NRV π A B C D E F
37 12/31/14 Cost of goods sold expense 15 Inventory 15 adjustment for C (150 units * 0.10 / unit) 12/31/14 Cost of goods sold expense Inventory adjustment for D (450 units * 0.05 / unit) 12/31/14 Cost of goods sold expense 75 Inventory 75 adjustment for F (375 units * 0.20 / unit) Total adjusted value for inventory Balance before adjustment 6, Write-down Adjusted balance 6,
38 Solution to HW 71 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A % B % C % D % E % F % 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A ,720 B ,910 C ,735 D ,650 E ,683 F ,365 37, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest replacement acceptable acceptable Item # units cost / unit market / unit cost / unit NRV NRV π A B C D E F
39 12/31/14 Cost of goods sold expense 154 Inventory 154 adjustment for B (200 units * 0.77 / unit) 12/31/14 Cost of goods sold expense 570 Inventory 570 adjustment for C (300 units * 1.90 / unit) 12/31/14 Cost of goods sold expense 4,172 Inventory 4,172 adjustment for E (810 units * 5.15 / unit) Total adjusted value for inventory Balance before adjustment 37,063 Write-down 4,896 Adjusted balance 32,
40 Solution to HW 72 Lower of cost or market Actual cost $14 Estimated selling price Normal profit margin on selling price % Estimated cost to sell Replacement Cost What is the ceiling of the acceptable range? 8 = What is the floor of the acceptable range? 7 = 8 0.1*10 3. What is the market? 8 = Replacement cost is outside range, the ceiling is closes acceptable amount 4. What is LCM? 8 = historical cost of 14 is higher than market of 8 Solution to HW 73 Lower of cost or market highest lowest necessary replacement acceptable acceptable Item hist cost market adjustment cost NRV NRV π Aluminum 70,000 56,000 14,000 62,500 56,000 50,900 Cedar shake 86,000 79,400 6,600 79,400 84,800 77,400 Louverd gl 112, , , , ,800 Thermal W 140, ,000 12, , , ,600 32,600 If using the direct write-down method as used in class, the necessary adjustment is: 12/31 Cost of goods sold expense 32,600 Inventory 32,600 If using the allowance method as explained in the textbook, the necessary adjustment is: 12/31 Cost of goods sold expense 5,100 Allowance 5,
41 Professor Authored Problem Solutions Intermediate Accounting 2 Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio = CGS Avg inventory = 160,000 20,000 = 8.0 Days sales in EI = Avg inventory (CGS 365) = 20,000 (160, ) = 20, = AR turnover ratio = Sales Avg AR = 270,000 66,000 = Average collection period = Avg AR (Sales 365) = 66,000 (270, ) = 66, =
42 Solution to Problem 68 Retail Inventory retail Beginning inventory $10,500 $42,000 Purchases (gross) 465, ,000 Freight in 12, Markups ,000 Markdowns ,000 Good available for sale 487, ,000 Sales (net) ,000 Sales discounts --- 7,000 Ending retail 145,000 We need to subtract gross. If sales is listed at gross, we ignore sales discounts. If sales is listed at net, we add sales discounts to sales@net to get gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465, ,000) (892, ,000! 112,000) = FIFO cost = 145,000 * = 83,131 CGS = 487,500 83,131 = 484, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10, , ,000) (42, , ,000! 112,000) = WA cost = 145,000 * = 80,878 CGS = 487,500 80,878 = 406,
43 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10, , ,000) (42, , ,000) = WALCM cost = 145,000 * = 71,691 CGS = 487,500 71,691 = 415, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465, ,000) (892, ,000) = FIFOLCM cost = 145,000 * = 73,268 CGS = 487,500 73,268 = 414,
44 1. FIFO basis Solution to HW 69 Retail inventory retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52, Markups ,000 Markdowns ,000 Good available for sale 735,320 1,101,771 Sales gross) ,432 Sales discounts ,000 Ending retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631, ,000) (1,079, ,000! 146,000) = FIFO cost = 123,339 * = 83,797 CGS = 735,320 83,797 = 651, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52, , ,000) (96, ,079, ,000! 146,000) = WA cost = 123,339 * = 82,316 CGS = 735,320 82,316 = 651,
45 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52, , ,000) (96, ,079, ,000) = WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631, ,000) (1,079, ,000) = FIFOLCM cost = 123,339* = 73,164 CGS = 735,320 73,164 = 662,
46 Solution to HW 70 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A B C D E F What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A B ,250 C D ,575 E F ,613 6, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest market replacement acceptable acceptable Item # units cost/unit cost/unit cost / unit NRV NRV π A B C D E F
47 12/31/14 Cost of goods sold expense 15 Inventory 15 adjustment for C (150 units * 0.10 / unit) 12/31/14 Cost of goods sold expense Inventory adjustment for D (450 units * 0.05 / unit) 12/31/14 Cost of goods sold expense 75 Inventory 75 adjustment for F (375 units * 0.20 / unit) Total adjusted value for inventory Balance before adjustment 6, Write-down Adjusted balance 6,
48 Solution to HW 71 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A % B % C % D % E % F % 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A ,720 B ,910 C ,735 D ,650 E ,683 F ,365 37, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest replacement acceptable acceptable Item # units cost / unit market / unit cost / unit NRV NRV π A B C D E F
49 12/31/14 Cost of goods sold expense 154 Inventory 154 adjustment for B (200 units * 0.77 / unit) 12/31/14 Cost of goods sold expense 570 Inventory 570 adjustment for C (300 units * 1.90 / unit) 12/31/14 Cost of goods sold expense 4,172 Inventory 4,172 adjustment for E (810 units * 5.15 / unit) Total adjusted value for inventory Balance before adjustment 37,063 Write-down 4,896 Adjusted balance 32,
50 Solution to HW 72 Lower of cost or market Actual cost $14 Estimated selling price Normal profit margin on selling price % Estimated cost to sell Replacement Cost What is the ceiling of the acceptable range? 8 = What is the floor of the acceptable range? 7 = 8 0.1*10 3. What is the market? 8 = Replacement cost is outside range, the ceiling is closes acceptable amount 4. What is LCM? 8 = historical cost of 14 is higher than market of 8 Solution to HW 73 Lower of cost or market highest lowest necessary replacement acceptable acceptable Item hist cost market adjustment cost NRV NRV π Aluminum 70,000 56,000 14,000 62,500 56,000 50,900 Cedar shake 86,000 79,400 6,600 79,400 84,800 77,400 Louverd gl 112, , , , ,800 Thermal W 140, ,000 12, , , ,600 32,600 If using the direct write-down method as used in class, the necessary adjustment is: 12/31 Cost of goods sold expense 32,600 Inventory 32,600 If using the allowance method as explained in the textbook, the necessary adjustment is: 12/31 Cost of goods sold expense 5,100 Allowance 5,
51 Professor Authored Problem Solutions Intermediate Accounting 2 Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio = CGS Avg inventory = 160,000 20,000 = 8.0 Days sales in EI = Avg inventory (CGS 365) = 20,000 (160, ) = 20, = AR turnover ratio = Sales Avg AR = 270,000 66,000 = Average collection period = Avg AR (Sales 365) = 66,000 (270, ) = 66, =
52 Solution to Problem 68 Retail Inventory retail Beginning inventory $10,500 $42,000 Purchases (gross) 465, ,000 Freight in 12, Markups ,000 Markdowns ,000 Good available for sale 487, ,000 Sales (net) ,000 Sales discounts --- 7,000 Ending retail 145,000 We need to subtract gross. If sales is listed at gross, we ignore sales discounts. If sales is listed at net, we add sales discounts to sales@net to get gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465, ,000) (892, ,000! 112,000) = FIFO cost = 145,000 * = 83,131 CGS = 487,500 83,131 = 484, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10, , ,000) (42, , ,000! 112,000) = WA cost = 145,000 * = 80,878 CGS = 487,500 80,878 = 406,
53 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10, , ,000) (42, , ,000) = WALCM cost = 145,000 * = 71,691 CGS = 487,500 71,691 = 415, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465, ,000) (892, ,000) = FIFOLCM cost = 145,000 * = 73,268 CGS = 487,500 73,268 = 414,
54 1. FIFO basis Solution to HW 69 Retail inventory retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52, Markups ,000 Markdowns ,000 Good available for sale 735,320 1,101,771 Sales gross) ,432 Sales discounts ,000 Ending retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631, ,000) (1,079, ,000! 146,000) = FIFO cost = 123,339 * = 83,797 CGS = 735,320 83,797 = 651, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52, , ,000) (96, ,079, ,000! 146,000) = WA cost = 123,339 * = 82,316 CGS = 735,320 82,316 = 651,
55 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52, , ,000) (96, ,079, ,000) = WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631, ,000) (1,079, ,000) = FIFOLCM cost = 123,339* = 73,164 CGS = 735,320 73,164 = 662,
56 Solution to HW 70 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A B C D E F What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A B ,250 C D ,575 E F ,613 6, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest market replacement acceptable acceptable Item # units cost/unit cost/unit cost / unit NRV NRV π A B C D E F
57 12/31/14 Cost of goods sold expense 15 Inventory 15 adjustment for C (150 units * 0.10 / unit) 12/31/14 Cost of goods sold expense Inventory adjustment for D (450 units * 0.05 / unit) 12/31/14 Cost of goods sold expense 75 Inventory 75 adjustment for F (375 units * 0.20 / unit) Total adjusted value for inventory Balance before adjustment 6, Write-down Adjusted balance 6,
58 Solution to HW 71 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A % B % C % D % E % F % 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A ,720 B ,910 C ,735 D ,650 E ,683 F ,365 37, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest replacement acceptable acceptable Item # units cost / unit market / unit cost / unit NRV NRV π A B C D E F
59 12/31/14 Cost of goods sold expense 154 Inventory 154 adjustment for B (200 units * 0.77 / unit) 12/31/14 Cost of goods sold expense 570 Inventory 570 adjustment for C (300 units * 1.90 / unit) 12/31/14 Cost of goods sold expense 4,172 Inventory 4,172 adjustment for E (810 units * 5.15 / unit) Total adjusted value for inventory Balance before adjustment 37,063 Write-down 4,896 Adjusted balance 32,
60 Solution to HW 72 Lower of cost or market Actual cost $14 Estimated selling price Normal profit margin on selling price % Estimated cost to sell Replacement Cost What is the ceiling of the acceptable range? 8 = What is the floor of the acceptable range? 7 = 8 0.1*10 3. What is the market? 8 = Replacement cost is outside range, the ceiling is closes acceptable amount 4. What is LCM? 8 = historical cost of 14 is higher than market of 8 Solution to HW 73 Lower of cost or market highest lowest necessary replacement acceptable acceptable Item hist cost market adjustment cost NRV NRV π Aluminum 70,000 56,000 14,000 62,500 56,000 50,900 Cedar shake 86,000 79,400 6,600 79,400 84,800 77,400 Louverd gl 112, , , , ,800 Thermal W 140, ,000 12, , , ,600 32,600 If using the direct write-down method as used in class, the necessary adjustment is: 12/31 Cost of goods sold expense 32,600 Inventory 32,600 If using the allowance method as explained in the textbook, the necessary adjustment is: 12/31 Cost of goods sold expense 5,100 Allowance 5,
61 Professor Authored Problem Solutions Intermediate Accounting 2 Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio = CGS Avg inventory = 160,000 20,000 = 8.0 Days sales in EI = Avg inventory (CGS 365) = 20,000 (160, ) = 20, = AR turnover ratio = Sales Avg AR = 270,000 66,000 = Average collection period = Avg AR (Sales 365) = 66,000 (270, ) = 66, =
62 Solution to Problem 68 Retail Inventory retail Beginning inventory $10,500 $42,000 Purchases (gross) 465, ,000 Freight in 12, Markups ,000 Markdowns ,000 Good available for sale 487, ,000 Sales (net) ,000 Sales discounts --- 7,000 Ending retail 145,000 We need to subtract gross. If sales is listed at gross, we ignore sales discounts. If sales is listed at net, we add sales discounts to sales@net to get gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465, ,000) (892, ,000! 112,000) = FIFO cost = 145,000 * = 83,131 CGS = 487,500 83,131 = 484, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10, , ,000) (42, , ,000! 112,000) = WA cost = 145,000 * = 80,878 CGS = 487,500 80,878 = 406,
63 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10, , ,000) (42, , ,000) = WALCM cost = 145,000 * = 71,691 CGS = 487,500 71,691 = 415, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465, ,000) (892, ,000) = FIFOLCM cost = 145,000 * = 73,268 CGS = 487,500 73,268 = 414,
64 1. FIFO basis Solution to HW 69 Retail inventory retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52, Markups ,000 Markdowns ,000 Good available for sale 735,320 1,101,771 Sales gross) ,432 Sales discounts ,000 Ending retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631, ,000) (1,079, ,000! 146,000) = FIFO cost = 123,339 * = 83,797 CGS = 735,320 83,797 = 651, Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52, , ,000) (96, ,079, ,000! 146,000) = WA cost = 123,339 * = 82,316 CGS = 735,320 82,316 = 651,
65 3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52, , ,000) (96, ,079, ,000) = WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662, FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631, ,000) (1,079, ,000) = FIFOLCM cost = 123,339* = 73,164 CGS = 735,320 73,164 = 662,
66 Solution to HW 70 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A B C D E F What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A B ,250 C D ,575 E F ,613 6, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest market replacement acceptable acceptable Item # units cost/unit cost/unit cost / unit NRV NRV π A B C D E F
67 12/31/14 Cost of goods sold expense 15 Inventory 15 adjustment for C (150 units * 0.10 / unit) 12/31/14 Cost of goods sold expense Inventory adjustment for D (450 units * 0.05 / unit) 12/31/14 Cost of goods sold expense 75 Inventory 75 adjustment for F (375 units * 0.20 / unit) Total adjusted value for inventory Balance before adjustment 6, Write-down Adjusted balance 6,
68 Solution to HW 71 Lower of cost or market current estimated marginal replacement sales price selling normal Item # units cost/unit cost/unit / unit costs / unit profit / unit A % B % C % D % E % F % 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A ,720 B ,910 C ,735 D ,650 E ,683 F ,365 37, Applying the LCM method on a product by product basis, write the journal entry for the LCM adjustment. What is the total adjusted cost of ending inventory? current highest lowest replacement acceptable acceptable Item # units cost / unit market / unit cost / unit NRV NRV π A B C D E F
69 12/31/14 Cost of goods sold expense 154 Inventory 154 adjustment for B (200 units * 0.77 / unit) 12/31/14 Cost of goods sold expense 570 Inventory 570 adjustment for C (300 units * 1.90 / unit) 12/31/14 Cost of goods sold expense 4,172 Inventory 4,172 adjustment for E (810 units * 5.15 / unit) Total adjusted value for inventory Balance before adjustment 37,063 Write-down 4,896 Adjusted balance 32,
2 Under a perpetual inventory system merchandise is purchased for cash. Which is the correct journal entry to record this purchase?
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