9-21
EXERCISE 9-5 (Continued)
*
Jan. 31
Feb. 28
Mar. 31
Apr. 30
Inventory at cost
$15,000
$15,100
$17,000
$14,000
Inventory at the lower-of-cost-
or-market
14,500
12,600
15,600
13,300
Allowance amount needed to
$1,400 – $700 = $700
(b)
Jan. 31
Loss Due to Market Decline of Inventory ….
500
Allowance to Reduce Inventory
to Market ……………………………………..
500
Mar. 31
Allowance to Reduce Inventory to Market …..
Apr. 30
Allowance to Reduce Inventory to Market …..
700
Recovery of Loss Due to Market
Decline of Inventory ……………………..
700
Gain (loss) due to market
EXERCISE 9-6
Net realizable value (ceiling)
$50 – $14 = $36
Net realizable value less normal profit (floor)
$36 – $ 9 = $27
Replacement cost
$38
Designated market
Ceiling
Cost
$36
9-23
EXERCISE 9-7 (15–20 minutes)
Cost Per Lot
(Cost
Allocated/
No. of Lots)
$2,040
$ 3,840
$78,000
* 9 – 5 = 4
Group 1
Cost
Allocated
to Lots
$18,360
$85,000
Total
Cost
$85,000
X
Relative Sales
Price
$27,000/$125,000
$78,000
53,040
24,960
18,200
$ 6,760
Total
Sales
Price
$ 27,000
$125,000
Sales (see schedule)
Cost of goods sold (see schedule)
Gross profit
Operating expenses
Net income
Sales
Price Per Lot
$3,000
No. of
Lots
9
Group 1
$60,000/$125,000
Group 2
9-24
EXERCISE 9-8 (12–17 minutes)
Cost per
Chair
$54
48
30
Cost
Allocated
to Chairs
$21,600
14,400
24,000
$60,000
Total
Cost
$60,000
60,000
60,000
X
X
X
Relative Sales
Price
$36,000/$100,000
$24,000/$100,000
$40,000/$100,000
Total
Sales
Price
$36,000
24,000
40,000
$100,000
Sales
Price per
Chain
$90
80
50
No. of
Chairs
400
300
800
Chairs
Lounge chairs
Armchairs
Straight chairs
$12,800
4,800
(800 – 120) X $30 = $20,400
Armchairs
9-25
EXERCISE 9-9 (5–10 minutes)
Unrealized Holding Gain or Loss—Income
EXERCISE 9-10 (15–20 minutes)
(a) If the commitment is material in amount, there should be a footnote in
the balance sheet stating the nature and extent of the commitment.
The footnote may also disclose the market price of the materials. The
excess of market price over contracted price is a gain contingency
which cannot be recognized in the accounts until it is realized.
The entry is made because a loss in utility has occurred during the
period in which the market decline took place. The account credited in
the above entry should be included among the current liabilities on
the balance sheet, with an appropriate footnote indicating the nature
and extent of the commitment. This liability indicates the minimum
obligation on the commitment contract at the present time—the
amount that would have to be forfeited in case of breach of contract.
9-26
EXERCISE 9-10 (Continued)
This entry debits the raw materials at the actual cost ($108,000),
eliminates the $12,000 liability set up at December 31, 2013, and records
EXERCISE 9-11 (8–13 minutes)
(1)
20%
= 16.67% OR 16 2/3%.
100% + 20%
(2)
25%
= 20%.
100% + 25%
(3)
= 25%.
(4)
50%
= 33.33% OR 33 1/3%.
100% + 50%
EXERCISE 9-12 (10–15 minutes)
(a)
Inventory, May 1 (at cost) ………………………………..
$160,000
Purchases (at cost) …………………………………………
640,000
Purchase discounts ………………………………………..
(12,000)
30,000
Goods available (at cost) …………………………
Sales (at selling price) …………………………………….
Sales returns (at selling price) …………………………
Net sales (at selling price) ……………………………….
Less: Gross profit (25% of $930,000) ……………….
Sales (at cost) …………………………………………
697,500
EXERCISE 9-12 (Continued)
(b) Gross profit as a percent of sales must be computed:
25%
= 20% of sales.
100% + 25%
Inventory, May 1 (at cost) …………………………..
Purchases (at cost) ……………………………………
Purchase discounts …………………………………..
Goods available (at cost) ……………………
Sales (at selling price) ……………………………….
Sales returns (at selling price) ……………………
Net sales (at selling price) ………………………….
Less: Gross profit (20% of $930,000) ………….
Sales (at cost) …………………………………..
EXERCISE 9-13 (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
Total merchandise available (at cost) …
Cost of goods sold* …………………………………..
Ending inventory ……………………………………….
41,000
Less: Undamaged goods ………………………….
10,900
9-28
EXERCISE 9-13 (Continued)
(b)
Cost of goods sold = 66 2/3% of sales of $120,000 = $80,000
EXERCISE 9-14
Beginning inventory ……………………………………………….
$170,000
Purchases ……………………………………………………………..
450,000
620,000
Purchase returns ……………………………………………………
Goods available (at cost) ………………………………………..
Sales ……………………………………………………………………..
Sales returns ……………………………………………………….…
Net sales ……………………………………………………………….
Less: Gross profit (30% X $626,000) ……………………….
Less: Undamaged goods ………………………………
EXERCISE 9-15 (10–15 minutes)
Beginning inventory (at cost) ……………………………..
$ 38,000
Purchases (at cost) ……………………………………………
90,000
Goods available (at cost) …………………………...
128,000
Sales (at selling price) …………………………..…………..
$116,000
Less sales returns ……………………………………………..
4,000
Net sales …………………………..………………………………
112,000
Less: Gross profit* (20% of $112,000)…………………
22,400
Net sales (at cost) ……………………………………..
89,600
Estimated inventory (at cost) ……………………………..
Less: Goods on hand ($30,500 – $6,000) ……………..
EXERCISE 9-16 (15–20 minutes)
Lumber
Millwork
Hardware
Inventory 1/1/13 (cost)
$ 250,000
$ 90,000
$ 45,000
Purchases to 8/18/13 (cost)
1,500,000
375,000
160,000
Cost of goods available
1,750,000
465,000
205,000
Deduct cost of goods sold*
1,640,000
410,000
175,000
Inventory 8/18/13
$ 110,000
$ 55,000
$ 30,000
*(See computations on next page)
9-30
EXERCISE 9-16 (Continued)
*Computation for cost of goods sold:
Lumber:
$2,050,000
= $1,640,000
1.25
*Alternative computation for cost of goods sold:
Markup on selling price: Cost of goods sold:
Lumber:
= 20% or 1/5
$2,050,000 X 80% = $1,640,000
Millwork:
= 3/13
$533,000 X 10/13 = $410,000
Hardware:
= 2/7
$245,000 X 5/7 = $175,000
Millwork:
= $410,000
1.30
EXERCISE 9-17 (20–25 minutes)
Ending inventory:
(a)
Gross profit is 40% of sales
Total goods available for sale (at cost) ……..
$2,100,000
Sales (at selling price) ……………………………..
$2,300,000
Less: Gross profit (40% of sales)……………..
920,000
Sales (at cost) ……………………………….
1,380,000
Ending inventory (at cost) ………………
$ 720,000
(b)
Gross profit is 60% of cost
= 37.5% markup on selling price
100% + 60%
Total goods available for sale (at cost) ……..
$2,100,000
Sales (at selling price) ……………………………..
$2,300,000
Less: Gross profit (37.5% of sales) …………..
862,500
Sales (at cost) ……………………………….
1,437,500
Ending inventory (at cost) ………………
$ 662,500
(c)
Gross profit is 35% of sales
Total goods available for sale (at cost) ……..
$2,100,000
Sales (at selling price) ……………………………..
$2,300,000
Less: Gross profit (35% of sales)……………..
805,000
Sales (at cost) ……………………………….
1,495,000
Ending inventory (at cost) ………………
$ 605,000
9-32
EXERCISE 9-17 (Continued)
(d)
Gross profit is 25% of cost
EXERCISE 9-18 (20–25 minutes)
(a)
Cost
Retail
Beginning inventory ……………………………….
$ 58,000
$100,000
Purchases ……………………………………………..
Net markups ………………………………………….
Totals ……………………………………………
320,000
Net markdowns ………………………………………
(30,000)
Sales price of goods available ………………..
Deduct: Sales………………………………………..
Ending inventory at retail ……………………….
(b)
1.
$180,000 ÷ $300,000 = 60%
2.
$180,000 ÷ $270,000 = 66.67%
4.
$180,000 ÷ $290,000 = 62.07%
Total goods available for sale (at cost) ……
Sales (at selling price) …………………………...
Less: Gross profit (20% of sales) …………….
Sales (at cost) ………………………………………..
Ending inventory (at cost) ………………………
$ 260,000
EXERCISE 9-18 (Continued)
(c)
1.
Method 3.
2.
Method 3.
3.
Method 3.
$186,000 – $121,500 = $64,500
EXERCISE 9-19 (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
Add: Net markups
Markups …………………………….
Markup cancellations ………….
Deduct: Net markdowns
Markdowns …………………………
Markdown cancellations ………
30,000
Sales price of goods available ……..
2,470,000
Deduct: Sales …………………………....
2,250,000
9-34
EXERCISE 9-20 (20–25 minutes)
Cost
Retail
Beginning inventory …………………………
$30,000
$ 46,500
Purchases ……………………………………….
55,000
88,000
Purchase returns ……………………………..
(2,000)
(3,000)
Freight on purchases ……………………….
2,400
Totals ……………………………………..
85,400
Add: Net markups
Markups …………………………………
$10,000
Markup cancellations ………………
Net markups …………………………………….
8,500
$85,400
Deduct: Net markdowns
Markdowns ……………………………..
9,300
Markdown cancellations …………..
(2,800)
Net markdowns ………………………………..
6,500
Sales price of goods available ………….
133,500
Deduct: Net sales ($95,000 – $2,000) …
93,000
EXERCISE 9-21 (10–15 minutes)
(a) Inventory turnover:
2010
2009
$8,923
= 6.63 times
$9,458
= 6.97 times
$1,344 + $1,347
$1,347 + $1,367
2
2
2009
365 ÷ 6.97 = 52.4 days
9-35
*EXERCISE 9-22 (25–35 minutes)
(a)
Conventional Retail Method
Cost
Retail
Inventory, January 1, 2013 ……………….
$ 41,100
$ 60,000
Purchases (net) ……………………………….
150,000
191,000
Ending inventory at cost = 70% X $93,000 = $65,100
(b)
LIFO Retail Method
Cost
Retail
Inventory, January 1, 2013 …………………..
$ 41,100
$ 60,000
Net markups ……………………………………….
22,000
Ending inventory at retail …………………….
Totals …………………………..………..
$191,100
273,000
Deduct: Sales (net) ………………………….
167,000
Ending inventory at retail …………………
9-36
*EXERCISE 9-22 (Continued)
Computation of ending inventory at LIFO cost, 2013:
Ending Inventory
at Retail Prices
Layers at
Retail Prices
Cost-to-Retail
Percentage
Ending Inventory
at LIFO Cost
*EXERCISE 9-23 (15–20 minutes)
(a)
Cost
Retail
Inventory, January 1, 2013 ………………..
$14,000
$ 20,000
Net Purchases …………………………………
55,500
81,000
Net markups ……………………………………
9,000
Totals ……………………………………..
Sales ……………………………………………….
Net markdowns ……………………………….
Estimated theft ………………………………..
Ending inventory at retail …………………
9-37
*EXERCISE 9-23 (Continued)
(b)
Cost
Retail
Purchases ……………………………………..
$55,500
$81,000
Freight-in ………………………………………
7,500
Net markups ………………………………….
9,000
Net markdowns ……………………………..
______
(2,500)
Totals ……………………………………
$63,000
$87,500
*EXERCISE 9-24 (10–15 minutes)
(a)
Cost-to-retail ratio—beginning inventory:
$222,000
= 74%
$300,000
*($294,300 ÷ 1.09) X 74% = $199,800
Cost-to-retail ratio:
= 72%
Beginning inventory, 2013 ………………
$14,000
$20,000
Increment ………………………………………
7,560
Ending inventory, 2013 …………………..
$21,560
$30,500
9-38
*EXERCISE 9-24 (Continued)
(b)
Ending inventory at retail prices
deflated $359,700 ÷ 1.09 ………………………………………………
$330,000
Beginning inventory at beginning-of-year prices …………….
(300,000)
Inventory increase in terms of
beginning-of-year dollars …………………………………………….
$ 30,000
*EXERCISE 9-25 (5–10 minutes)
Ending inventory at retail (deflated) $95,150 ÷ 1.10 …………………
$86,500
Beginning inventory at retail …………………………………………………
(74,500)
Increment at retail…………………………………………………………………
$12,000
First layer …………………………………………………………………….
Second layer ($12,000 X 1.10 X 55%) ……………………………..
7,260
9-39
*EXERCISE 9-26 (20–25 minutes)
(a)
Cost
Retail
Beginning inventory …………………………………
$ 34,300
$ 50,000
Net purchases ………………………………………….
108,500
150,000
(b)
Cost
Retail
Beginning inventory …………………………………
$ 34,300
$ 50,000
Net purchases ………………………………………….
108,500
150,000
Net markups …………………………………………….
10,000
Net markdowns ………………………………………..
(5,000)
Total (excluding beginning inventory) ………..
108,500
155,000
Total (including beginning inventory) ………..
$142,800
205,000
Sales ……………………………………………………….
(128,000)
Ending inventory at retail (base year)
($77,000 ÷ 1.10) ………………………………………
Cost-retail ratio for new layer:
$108,500/$155,000 = 70%
Layers:
Base layer
$50,000 X 1.00 X 68.6%* = ……………….
$ 34,300
New layer
($70,000 – $50,000) X 1.10 X 70% = ….
15,400
*($34,300/$50,000)
(c)
Cost of goods available for sale ………………..
$142,800
Ending inventory at cost, from (b) ……………..
(49,700)
Cost of goods sold ……………………………………
Net markups …………………………………………….
10,000
Totals ………………………………………………
$142,800
210,000
Net markdowns ………………………………………..
(5,000)
Sales ……………………………………………………….
(128,000)
Ending inventory at retail ………………………….
$ 77,000
Cost-retail ratio = 68% ($142,800/$210,000)
9-40
*EXERCISE 9-27 (20–25 minutes)
2011
Restate to base-year retail ($121,900 ÷ 1.06)
$115,000
Layers: 1. $100,000 X 1.00 X 54%* =
$ 54,000
2. $ 15,000 X 1.06 X 57% =
9,063
Ending inventory
$ 63,063
2. $ 15,000 X 1.06 X 57% =
9,063
3. $ 10,000 X 1.11 X 60% =
6,660
Ending inventory
$ 69,723
2013
Restate to base-year retail ($126,500 ÷ 1.15)
$110,000
Layers: 1. $100,000 X 1.00 X 54% =
$ 54,000
2. $ 10,000 X 1.06 X 57% =
Ending inventory
$ 60,042
2014
Restate to base-year retail ($162,500 ÷ 1.25)
$130,000
Layers: 1. $100,000 X 1.00 X 54% =
2. $ 10,000 X 1.06 X 57% =
6,042
3. $ 20,000 X 1.25 X 58% =
14,500
Ending inventory
$ 74,542
*EXERCISE 9-28 (5–10 minutes)
Inventory (beginning) ………………………………………………
5,600
Adjustment to Record Inventory at Cost*
($210,600 – $205,000) ……………………………………
5,600
*$54,000 ÷ $100,000
2012
Restate to base-year retail ($138,750 ÷ 1.11)
$125,000
Layers: 1. $100,000 X 1.00 X 54% =