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Chapter 9 Inventories: Additional Issues
82. Listed below are 10 terms followed by a list of phrases that describe or characterize the terms.
Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Dollar-value LIFO
retail
Reduction in selling price below the original selling
price.
____
2. Cost-to-retail
percentage
Requires base year retail to be converted to layer year
retail and then to cost.
____
3. Conventional retail
method
Accounting change requiring retrospective treatment.
____
4. Change from LIFO
Selling price less costs to sell.
____
5. Gross profit method
Usually impossible to calculate the effect on prior years'
financial statements.
____
6. Net realizable value
Average cost, lower of cost and NRV.
____
7. Markdown
Not acceptable for the preparation of annual financial
statements.
____
8. Change to LIFO from
FIFO
Must be added to sales if sales are recorded net of
discounts.
____
9. Employee discounts
Deducted in the retail column after the calculation of the
cost-to-retail percentage.
____
10. Normal spoilage
Divide cost of goods available for sale by goods
available at retail.
____
Chapter 9 Inventories: Additional Issues
Problems
Use the following to answer questions 83–85:
Novelli's Nursery has developed the following data for lower of cost and net realizable valuation for
its products:
Selling
Price
Cost
Broad leaf trees:
Ash
$1,800
$1,700
Beech
2,200
1,600
Needle leaf trees:
Cedar
$2,500
$1,750
Fir
3,600
3,350
Fruit trees:
Apple
$1,800
$1,400
Cherry
2,300
1,800
The costs to sell are 10% of selling price.
83. Required: Determine the reported inventory value assuming the lower of cost and net
realizable value rule is applied to individual trees.
Chapter 9 Inventories: Additional Issues
84. Required: Determine the reported inventory value assuming the lower of cost and net
realizable value rule is applied to classes of trees.
85. Required: Determine the reported inventory value assuming the lower of cost and net
realizable value rule is applied to the total inventory.
Chapter 9 Inventories: Additional Issues
Use the following to answer questions 86–88:
Weldon Animal Feeds has developed the following data for lower of cost and net realizable valuation
for its products (in thousands):
Selling
Price
Cost
Large animals:
Cattle
$320
$160
Horse
400
350
Small animals:
Cat
$360
$320
Dog
120
90
Exotic pets:
Ferret
$140
$112
Iguana
70
48
The costs to sell are 20% of selling price.
86. Required: Determine the reported inventory value assuming the lower of cost and net
realizable value rule is applied to individual types of feeds.
Chapter 9 Inventories: Additional Issues
87. Required: Determine the reported inventory value assuming the lower of cost and net
realizable value rule is applied to classes of feeds.
88. Required: Determine the reported inventory value assuming the lower of cost and net
realizable value rule is applied to the total inventory.
Chapter 9 Inventories: Additional Issues
89. Henderson Company uses the gross profit method to estimate ending inventory and cost of
goods sold when preparing monthly financial statements required by its bank. Inventory on
hand at the end of July was $122,500. The following information for the month of August was
available from company records:
Purchases $219,000
Freight-in 5,200
Sales 350,000
Sales returns 9,000
Purchases returns 4,300
In addition, the controller is aware of $10,000 of inventory that was stolen during August from
one of the company’s warehouses.
Required:
1. Calculate the estimated inventory at the end of August, assuming a gross profit ratio of
30%.
2. Calculate the estimated inventory at the end of August, assuming a markup on cost of
25%.
Chapter 9 Inventories: Additional Issues
90. On March 17, 2016, a flood destroyed the entire inventory of Beatty Co. The following
information is available from its accounting records:
Inventory, January 1, 2016
$208,000
Purchases, Jan. 1–Mar. 17
420,000
Sales, Jan. 1–Mar. 17
600,000
Normal gross margin
40%
Required:
Compute the estimated cost of inventory lost in the flood.
91. On July 5, 2016, a fire destroyed the entire inventory of Kinard Music Mart. The following
information is available from its accounting records:
Inventory, January 1, 2016
$211,000
Purchases, Jan. 1–July 5
500,000
Sales, Jan. 1–July 5
900,000
Normal gross margin
30%
Required:
Compute the estimated cost of inventory lost in the fire.
Chapter 9 Inventories: Additional Issues
92. On August 31, 2016, Hurricane Chuck destroyed Bedford Craft Mart's entire inventory. The
following information is available from its accounting records:
Inventory, January 1, 2016
$360,000
Purchases, Jan. 1–Aug. 31
960,000
Sales, Jan. 1–Aug. 31
1,350,000
Required:
Assuming that Bedford estimates the cost of destroyed inventory at $510,000, compute gross
profit margin % that Bedford uses in estimating inventory.
Chapter 9 Inventories: Additional Issues
93. Andover Stores uses the average cost retail method to estimate its ending inventory.
Information as of June 30, 2016, is as follows:
Cost
Retail
Beginning inventory
$ 45,000
$ 82,000
Net purchases
245,000
418,000
Net sales
400,000
Required:
Use the retail method to estimate the June 30, 2016, inventory.
94. DK Super Stores Inc. uses the average cost retail method to estimate its ending inventory.
Information at June 30, 2016, is as follows:
Cost
Retail
Beginning inventory
$ 105,000
Net purchases
375,000
Net sales
380,000
Ending inventory
$64,000
Required:
Compute the cost-to-retail percentage used by DK.
Chapter 9 Inventories: Additional Issues
95. Trask Inc. uses the average cost retail method to estimate its ending inventory. Partial
information at June 30, 2016, is as follows:
Cost
Retail
Beginning inventory
$ 62,000
???
Net purchases
238,000
319,000
Net sales
430,000
Ending inventory
42,000
Required:
Assuming Trask's cost-to-retail = 60%, compute Trask's beginning inventory at retail.
Chapter 9 Inventories: Additional Issues
96. Manila Bread Company uses the average cost retail method to estimate its ending inventories.
The following data has been summarized for the year 2016:
Cost
Retail
Inventory, January 1
$ 54,205
$ 78,000
Purchases
326,000
466,000
Net markups
8,200
Net markdowns
16,700
Net sales
412,000
Required:
Estimate the ending inventory as of December 31, 2016.
97. Penfold's Paints uses the average cost retail method to estimate its ending inventories. The
following data has been summarized for the year 2016:
Cost
Retail
Inventory, January 1
$ 65,000
Purchases
270,000
Net markups
3,600
Net markdowns
2,100
Net sales
260,000
Inventory, December 31
$55,080
Required:
Compute the cost-to-retail percentage used by Penfold's Paints.
Chapter 9 Inventories: Additional Issues
98. Murdock Industries uses a periodic inventory system and the LIFO retail method to estimate
its ending inventories. The following data has been summarized for December 31, 2016:
Cost
Retail
Inventory, January 1
$116,000
$165,000
Purchases
355,000
540,000
Net markups
15,600
Net markdowns
9,800
Net sales
522,000
Required:
Estimate the LIFO cost of ending inventory. Assume stable retail prices during the period.
Chapter 9 Inventories: Additional Issues
99. 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, 2016:
Cost
Retail
Inventory, January 1
$216,000
$285,000
Purchases
650,000
Net markups
18,300
Net markdowns
21,200
Net sales
625,000
Inventory, Dec. 31
$232,730
Required:
Determine the cost-to-retail percentage used by Littleton. Assume stable retail prices during
the period.
Chapter 9 Inventories: Additional Issues
100. Billingsly Products uses the conventional retail method to estimate its ending inventories. The
following data has been summarized for the year 2016:
Cost
Retail
Inventory, January 1
$ 53,000
$ 78,000
Purchases
322,360
466,000
Net markups
8,000
Net markdowns
16,700
Net sales
392,000
Required:
Estimate the ending inventory as of December 31, 2016.
Chapter 9 Inventories: Additional Issues
101. New York Sales Inc. uses the conventional retail method to estimate its ending inventories.
The following data has been summarized for December 31, 2016:
Cost
Retail
Inventory, January 1
$160,000
Purchases
538,000
Net markups
12,000
Net markdowns
9,100
Net sales
582,000
Inventory, Dec. 31
$77,285
Required:
Compute the cost-to-retail percentage used by New York Sales Inc.
Chapter 9 Inventories: Additional Issues
102. Harley Inc. uses the conventional retail method to estimate its ending inventories. The
following data has been summarized for December 31, 2016:
Cost
Retail
Inventory, January 1
$208,000
$ 280,000
Purchases
470,000
610,000
Net markups
15,300
Net markdowns
11,200
Normal spoilage
4,600
Net sales
489,500
Required:
Estimate the cost of ending inventory applying the conventional retail method.
