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Exam 9: Inventories: Additional Issues

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Question 21

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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 - $\begin{array} { | c | c | c | } \hline \text { Error } & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \text { Double counted items in ending inventory } & & \\\hline\end{array}$

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Question 22

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Weldon Animal Feeds has developed the following data in order to calculate the lower of cost or net realizable value for its products (in thousands). The products are listed within their category of feed product. The costs to sell are 20% of selling price. -Required: Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to categories of feeds.

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Question 23

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The market value for purposes of using the lower of cost or market (LCM) method is defined as replacement cost, subject to a ceiling and a floor.

Under the LIFO retail method, the current period cost-to-retail percentage includes both net markdowns and net markups.

Marilee's Electronics uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of June 2018: To the nearest thousand, estimated ending inventory is:

Ramsgate Company has used the FIFO method for inventory valuation since it began business in 2014, but has elected to change to the average cost method starting in 2017. Year-end inventory valuations under each method are shown below: Required: How, and when, would Ramsgate reflect the change in accounting principle in its financial statements (ignore income taxes)?

Cornhusker Can Co. uses the conventional retail method to estimate ending inventories. The following data has been summarized for year ended December 31, 2018: Required: Estimate the cost of ending inventory applying the conventional retail method. Assume that sales are recorded net of employee discounts.

The conventional retail inventory method is based on:

For a purchase commitment extending beyond the current fiscal year, if the market price on the purchase date declines from the previous year-end price, the purchase is recorded at the market price.

The first step, when using dollar-value LIFO retail method for inventory, is to:

Haskell Corporation has determined its year-end inventory on a FIFO basis to be $785,000. Information pertaining to that inventory is as follows: $\begin{array} { l r } \text { Selling price } & \$ 805,000 \\\text { Costs to sell } & 35,000 \\\text { Replacement cost } & 765,000\end{array}$ What should be the reported value of Haskell's inventory if the company prepares its financial statements according to International Financial Reporting Standards (IFRS) ?

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 supplies would be valued at:

In applying LCM, market cannot be:

On July 5, 2018, a fire destroyed the entire inventory of Kinard Music Mart. The following information is available from its accounting records: $\begin{array} { | l | r | } \hline \text { Inventory, January 1, 2018 } & \$ 211,000 \\\hline \text { Purchases, Jan. 1 - July 5 } & 500,000 \\\hline \text { Sales, Jan. 1 - July } 5 & 900,000 \\\hline \text { Normal gross margin } & 30 \% \\\hline\end{array}$ Required: Compute the estimated cost of inventory lost in the fire.

Purchase returns and purchase discounts are ignored when computing cost-to-retail ratios for the retail method.

The primary motivation behind the lower of cost or market (LCM) rule is conservatism.

Zanesville Pots Co. uses the conventional retail method to estimate ending inventories. The following data has been summarized for the year ended December 31, 2018: Required: Estimate the cost of ending inventory applying the conventional retail method.

Weldon Animal Feeds has developed the following data in order to calculate the lower of cost or net realizable value for its products (in thousands). The products are listed within their category of feed product. The costs to sell are 20% of selling price. -Required: Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to individual types of feeds.

In applying LCM, market cannot be:

Which of the following would not require the company to account for the change retrospectively?