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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402
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 (160,000 365) = 20,000 438.3562 = 45.625 AR turnover ratio = Sales Avg AR = 270,000 66,000 = 4.0909 Average collection period = Avg AR (Sales 365) = 66,000 (270,000 365) = 66,000 739.7260 = 89.2222 393
Solution to Problem 68 Retail Inventory Method @ cost @ retail Beginning inventory $10,500 $42,000 Purchases (gross) 465,000 892,000 Freight in 12,000 --- Markups --- 52,000 Markdowns --- 112,000 Good available for sale 487,500 874,000 Sales (net) --- 722,000 Sales discounts --- 7,000 Ending inventory @ retail 145,000 We need to subtract sales @ 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 sales @ gross. 1. FIFO basis FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (465,000 + 12,000) (892,000 + 52,000! 112,000) = 0.5733 EI @ FIFO cost = 145,000 * 0.5733 = 83,131 CGS = 487,500 83,131 = 484,369 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000! 112,000) = 0.5578 EI @ WA cost = 145,000 * 0.55578 = 80,878 CGS = 487,500 80,878 = 406,622 394
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (10,500 + 465,000 + 12,000) (42,000 + 892,000 + 52,000) = 0.4944 EI @ WALCM cost = 145,000 * 0.4944 = 71,691 CGS = 487,500 71,691 = 415,809 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (465,000 + 12,000) (892,000 + 52,000) = 0.5053 EI @ FIFOLCM cost = 145,000 * 0.5733 = 73,268 CGS = 487,500 73,268 = 414,132 395
1. FIFO basis Solution to HW 69 Retail inventory method @ cost @ retail Beginning inventory $52,320 $96,444 Purchases (gross) 631,000 1,079,327 Freight in 52,000 --- Markups --- 72,000 Markdowns --- 146,000 Good available for sale 735,320 1,101,771 Sales gross) --- 978,432 Sales discounts --- 97,000 Ending inventory @ retail 123,339 FIFO ratio = cost of net purchases retail of (net purchases + MU! MD) = (631,000 + 52,000) (1,079,327 + 72,000! 146,000) = 0.6794 EI @ FIFO cost = 123,339 * 0.6794 = 83,797 CGS = 735,320 83,797 = 651,523 2. Weighted average WAvg ratio = cost of (beg inv + net purch) retail of (beg inv net purch + MU! MD) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000! 146,000) = 0.6674 EI @ WA cost = 123,339 * 0.6674 = 82,316 CGS = 735,320 82,316 = 651,004 396
3. Weighted average with LCM Wavg/LCM ratio = cost of (beg inv+ net purchases) retail of (beg inv + net purchases + MU) = (52,320 + 631,000 + 52,000) (96,444 + 1,079,327 + 72,000) = 0.5893 EI @ WALCM cost = 123,339 *.5893 = 72,684 CGS = 735,320 72,684 = 662,636 4. FIFO basis with LCM FIFO/LCM ratio = cost of net purchases retail of (net purchases + MU) = (631,000 + 52,000) (1,079,327 + 72,000) = 0.5932 EI @ FIFOLCM cost = 123,339* 0.5932 = 73,164 CGS = 735,320 73,164 = 662,156 397
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 300 2.50 2.60 3.00 0.25 1.00 B 500 2.50 2.90 2.75 0.15 0.50 C 150 5.40 5.30 5.90 0.20 1.20 D 450 3.50 3.25 4.50 0.40 0.65 E 280 2.65 2.55 4.00 0.30 0.80 F 375 4.30 4.20 4.60 0.50 1.25 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 300 2.50 750 B 500 2.50 1,250 C 150 5.40 810 D 450 3.50 1,575 E 280 2.65 742 F 375 4.30 1,613 6,740 2. 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 300 2.50 2.60 2.60 2.75 1.75 B 500 2.50 2.60 2.90 2.60 2.10 C 150 5.40 5.30 5.30 5.70 4.50 D 450 3.50 3.45 3.25 4.10 3.45 E 280 2.65 2.90 2.55 3.70 2.90 F 375 4.30 4.10 4.20 4.10 2.85 398
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 22.50 Inventory 22.50 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 6,740.00 Write-down 112.50 Adjusted balance 6,627.50 399
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 400 14.30 15.60 22.15 0.00 10% B 200 9.55 9.70 10.33 1.55 5% C 350 22.10 20.30 28.00 2.80 25% D 120 13.75 13.25 16.50 1.00 10% E 810 8.25 2.55 4.00 0.30 15% F 550 24.30 34.20 38.50 3.85 15% 1. What is the FIFO cost of ending inventory? FIFO total FIFO Item # units cost/unit cost A 400 14.30 5,720 B 200 9.55 1,910 C 350 22.10 7,735 D 120 13.75 1,650 E 810 8.25 6,683 F 550 24.30 13,365 37,063 2. 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 400 14.30 19.93 15.60 22.15 19.93 B 200 9.55 8.78 9.70 8.78 7.75 C 350 22.10 20.20 20.30 25.20 18.20 D 120 13.75 13.85 13.25 15.50 13.85 E 810 8.25 3.10 2.55 3.70 3.10 F 550 24.30 28.87 34.20 34.65 28.87 400
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 32,167 401
Solution to HW 72 Lower of cost or market Actual cost................................ $14 Estimated selling price........................ 10 Normal profit margin on selling price.......... 10% Estimated cost to sell.......................... 2 Replacement Cost........................... 11 1. What is the ceiling of the acceptable range? 8 = 10 2 2. 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 112,000 149,800 0 124,000 168,300 149,800 Thermal W 140,000 128,000 12,000 128,000 140,000 124,600 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 5,100 402