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EXERCISE 9.11 (5–10 minutes)
Unrealized Holding Gain or Loss—Income
EXERCISE 9.12 (15–20 minutes)
(a) If the commitment is material in amount, there should be a footnote in
the statement of financial position stating the nature and extent of the
(b) The drop in the market price of the commitment should be charged to
operations in the current year if it is material in amount. The following
entry would be made:
(c) Assuming the €12,000 market decline entry was made on December
31, 2019, as indicated in (b), the entry when the materials are received
in January 2020 would be:
EXERCISE 9.12 (Continued)
This entry records the raw materials at the current cost, eliminates the
EXERCISE 9.13 (8–13 minutes)
(1)
20%
= 16.67% OR 16 2/3%.
100% + 20%
EXERCISE 9.14 (10–15 minutes)
(a)
Inventory, May 1 (at cost) ......................................
€160,000
Purchases (at cost) ................................................
640,000
Purchase discounts ...............................................
(12,000)
EXERCISE 9.14 (Continued)
(b) Gross profit as a percent of sales must be computed:
25%
= 20% of sales.
100% + 25%
Inventory, May 1 (at cost) ................................
€160,000
Purchases (at cost) ..........................................
640,000
EXERCISE 9.15 (15–20 minutes)
(a)
Merchandise on hand, January 1 ....................
$ 38,000
Purchases .........................................................
92,000
Less: Purchase returns and allowances .......
(2,400)
Freight-in ..........................................................
3,400
EXERCISE 9.15 (Continued)
(b)
Cost of goods sold = 66 2/3% of sales of $120,000 = $80,000
Ending inventory (at cost) ................................................
$51,000
EXERCISE 9.16 (15–20 minutes)
Beginning inventory ..................................................
R$170,000
Purchases ..................................................................
450,000
620,000
EXERCISE 9.17 (10–15 minutes)
Beginning inventory (at cost) ...................................
¥ 38,000
Purchases (at cost) ...................................................
90,000
Goods available (at cost) .................................
128,000
EXERCISE 9.18 (15–20 minutes)
Lumber
Millwork
Hardware
Inventory 1/1/19 (cost)
$ 250,000
$ 90,000
$ 45,000
EXERCISE 9.18 (Continued)
Computation for cost of goods sold:*
*Alternative computation for cost of goods sold:
Markup on selling price: Cost of goods sold:
EXERCISE 9.19 (20–25 minutes)
Ending inventory:
(a)
Gross profit is 40% of sales
Total goods available for sale (at cost) ........
£2,100,000
(b)
Gross profit is 60% of cost
(c)
Gross profit is 35% of sales
Total goods available for sale (at cost) ........
£2,100,000
Sales (at selling price) ...................................
£2,300,000
EXERCISE 9.19 (Continued)
(d)
Gross profit is 25% of cost
EXERCISE 9.20 (20–25 minutes)
(a)
Cost
Retail
Beginning inventory.......................................
R$ 58,000
R$100,000
Purchases .......................................................
122,000
200,000
(b)
1.
R$180,000 ÷ R$300,000 = 60%
EXERCISE 9.20 (Continued)
(c)
1.
Method 3.
EXERCISE 9.21 (12–17 minutes)
Cost
Retail
Beginning inventory .........................
€ 200,000
€ 280,000
Purchases .........................................
1,425,000
2,140,000
Totals .......................................
1,625,000
2,420,000
Cost-to-retail ratio =
€1,625,000
= 65%
€2,500,000
EXERCISE 9.22 (20–25 minutes)
Cost
Retail
Beginning inventory ..............................
£30,000
£ 46,500
Purchases ..............................................
55,000
88,000
Deduct: Net markdowns
Markdowns ...................................
9,300
Markdown cancellations ..............
(2,800)
Net markdowns .....................................
6,500
EXERCISE 9.23 (10–15 minutes)
(a) Inventory turnover:
2015
TIME AND PURPOSE OF PROBLEMS
Problem 9.1 (Time 10–15 minutes)
Purpose—to provide the student with an understanding of the lower-of-cost-or-net realizable value
Problem 9.2 (Time 25–30 minutes)
Purpose—to provide the student with an understanding of the lower-of-cost-or-net realizable value
Problem 9.3 (Time 30–35 minutes)
Problem 9.4 (Time 15–20 minutes)
Purpose—to provide a problem that requires entries for recording the unrealized gains and losses on
biological assets and harvested assets.
Problem 9.5 (Time 20–30 minutes)
Problem 9.6 (Time 40–45 minutes)
Purpose—to provide the student with a complex problem involving a fire loss where the gross profit
Problem 9.7 (Time 20–30 minutes)
Purpose—to provide the student with a problem on the retail inventory method. The problem is relatively
straightforward although transfers-in from other departments as well as the proper treatment for normal
spoilage complicate the problem. A good problem that summarizes the essentials of the retail inventory
method.
Problem 9.8 (Time 20–30 minutes)
Purpose—to provide the student with a problem on the retail inventory method. This problem is similar
Problem 9.9 (Time 20–30 minutes)
Time and Purpose of Problems (Continued)
Problem 9.10 (Time 30–40 minutes)
Problem 9.11 (Time 30–40 minutes)
Purpose—to provide the student with an opportunity to write a memo explaining what is net realizable
SOLUTIONS TO PROBLEMS
PROBLEM 9.1
Item
Cost
Net
Realizable
Value*
Lower-of-
Cost-or-
NRV
A
€470
€ 450
€450
PROBLEM 9.2
(a) 1. The balance in the Allowance to Reduce Inventory to NRV at May
31, 2019, should be £15,200, as calculated in Exhibit 1 below.
Cost
NRV
LCNRV
Aluminum siding
£ 70,000
£ 56,000
£ 56,000
2. For the fiscal year ended May 31, 2019, the gain that would be
recorded due to the change in the Allowance to Reduce Inventory
PROBLEM 9.2 (Continued)
(b) The use of the lower-of-cost-or-net realizable value (LCNRV) rule is
based on both the expense recognition principle and the concept of
PROBLEM 9.3
(a)
Cost-of-Goods-Sold Method
December 31, 2020
Cost of Goods Sold .........................................................
68,000
(b)
Loss Method
December 31, 2020
Loss Due to Decline of Inventory to NRV ......................
68,000
PROBLEM 9.4
(a)
Biological Assets—Grape Vineyard .......................
15,000
Unrealized Holding Gain or Loss – Income ...
15,000
(d)
Unrealized Holding Gain or Loss – Income ...........
€15,000
Unrealized Holding Gain or Loss – Income ...........
30,000
Gross Profit on Sold Grapes ..................................
5,000
Total Effect on Income ............................................
€50,000
PROBLEM 9.5
Beginning inventory .....................................................
¥ 80,000
Purchases .....................................................................
290,000
370,000
Purchase returns ..........................................................
(28,000)
PROBLEM 9.6
STANISLAW ASA
Computation of Inventory Fire Loss
April 15, 2019
Inventory, 1/1/19 ...........................................
€ 75,000
Purchases, 1/1/ – 3/31/19..............................
52,000
April merchandise shipments paid .............
3,400
Unrecorded purchases on account .............
15,600
Total ....................................................
146,000
Less: Shipments in transit ..........................
€ 2,300
Merchandise returned ......................
950
3,250
acknowledged ...........................
8,000
Total ..............................................
54,000
Add collections, 4/1/ – 4/15/19
(€12,950 – €950) ...............................
12,000
Total ..............................................
66,000
