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Exam 9: Inventories: Additional Issues

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Question 1

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Memphis Wholesale Market applies the lower of cost or net realizable valuation to individual products and has collected the following data: $\begin{array}{lccc}&\text { Product A }&\text { Product B }&\text { Product C }\\\text { Selling price } & \$ 100 & \$ 125 & \$ 80 \\\text { Cost } & 70 & 75 & 80 \\\text { Costs to sell } & 15 & 20 & 8\end{array}$ -Determine the inventory carrying value for Products A, B, and C assuming that Memphis Wholesale Market prepares its financial statements according to International Financial Reporting Standards (IFRS).

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*Selling price less ...

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Question 2

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An inventory written down due to the lower of cost or net realizable value may be written back up if net realizable value increases.

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Littleton Company uses a periodic inventory system and the LIFO retail method to estimate its ending inventories. The following partial data has been summarized for December 31, 2018: Required: Determine the cost-to-retail percentage used by Littleton. Assume stable retail prices during the period.

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2018. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2018, $300,000; sales and purchases from January 1, 2018, to May 1, 2018, $1,300,000 and $875,000, respectively. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2018, is:

Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost $20 was marked up $12, marked down for a sale by $6 and then had a markdown cancellation of $3. The latest selling price is:

Data below for the year ended December 31, 2018, relates to Houdini Inc. Houdini started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. - Estimated ending inventory at cost is:

Net realizable value is selling price less costs of completion, disposal, and transportation.

Cindy Lou Linens uses the conventional retail method to estimate its ending inventories. The company records sales net of employee discounts. The following partial data has been summarized for the year ended December 31, 2018: Required: Compute the net markups for Cindy Lou Linens during 2018.

Cloverdale, Inc., uses the conventional retail inventory method to account for inventory. The following information relates to current year's operations: What amount should be reported as cost of goods sold for the year?

Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards (IFRS) in the application of the lower of cost or net realizable value rule for valuing inventory.

Harlequin Co. has used the dollar-value LIFO retail method since it began operations in early 2017 (its base year) . Its beginning inventory for 2018 was $36,000 at cost and $72,000 at retail prices. At the end of 2018, it computed its estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail percentage for 2018 transactions was 60%, what is the inventory balance that Harlequin Co. would report in its 12/31/2018 balance sheet?

Sampress, Inc., reported inventory in the 2017 year-end balance sheet, using the average cost method, as $342,000. In 2018, the company decided to change its inventory method to FIFO. If the company had used the FIFO method in 2017, ending inventory would have been $367,000. What adjustment would Sampress make for this change in inventory method?

On March 17, 2018, a flood destroyed the entire inventory of Beatty Co. The following information is available from its accounting records: Compute the estimated cost of inventory lost in the flood.

Lacy's Linen Mart uses the average cost retail method to estimate inventories. Data for the first six months of 2018 include: beginning inventory at cost and retail were $60,000 and $120,000, net purchases at cost and retail were $312,000 and $480,000, and sales during the first six months totaled $490,000. The estimated inventory at June 30, 2018, would be:

Manila Bread Company uses the average cost retail method to estimate its ending inventories. The following data has been summarized for the year 2018: Required: Estimate the ending inventory as of December 31, 2018.

On September 5, 2018, Howard Corporation signed a purchase commitment to purchase inventory for $130,000 on or before March 31, 2019. The company's fiscal year-end is December 31. The contract was exercised on March 4, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of March 4, the market price of the inventory was $116,000. The market price of the inventory on December 31, 2018, was $120,000. The company uses a perpetual inventory system. Required: 1. Prepare the necessary adjusting journal entry (if any is required) on December 31, 2018. 2. Prepare the journal to record the purchase on March 4, 2019.

Data related to the inventories of Mountain Ski Equipment and Supplies is presented below: - In applying the lower of cost or market rule, the inventory of boots would be valued at:

Harley Inc. uses the conventional retail method to estimate its ending inventories. The following data has been summarized for December 31, 2018: Required: Estimate the cost of ending inventory applying the conventional retail method.

Andover Stores uses the average cost retail method to estimate its ending inventory. Information as of June 30, 2018, is as follows: Required: Use the retail method to estimate the June 30, 2018, inventory.

In the following questions, inventory errors are noted for 2018. Assume that the errors are not discovered until 2019, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = Understated; O = Overstated; NE = No effect - $\begin{array}{|c|c|c|}\hline {\text { Error }} & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \text { Recorded purchases for } \$ 523,000 \text { that } & & \\\text { should have been } \$ 532,000 . &\\\hline \end{array}$