EXERCISE 9-5 (Continued)
*
Jan. 31
Feb. 28
Mar. 31
Apr. 30
Inventory at cost
$15,000
$15,100
$17,000
$13,000
Inventory at the lower-of-cost-
or-market
14,500
12,600
15,600
12,300
(b)
Loss Due to Market Decline of Inventory ………………….
500
Allowance to Reduce Inventory
to Market ……………………………………………………..
500
Loss Due to Market Decline of Inventory ………………….
Allowance to Reduce Inventory
Allowance to Reduce Inventory to Market …………………….
700
Recovery of Loss Due to Market
EXERCISE 9-6
Net realizable value (ceiling)
$45 – $14 = $31
Net realizable value less normal profit (floor)
$31 – $ 9 = $22
Replacement cost
$35
Designated market
$31
Ceiling
Cost
$40
$31
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 9-23
EXERCISE 9-7 (15–20 minutes)
Cost Per Lot
(Cost Allocated/
No. of Lots)
$2,100
* 9 – 5 = 4
Group 3
Cost
Allocated
to Lots
$18,900
Total
Cost
$89,460
X
Relative Sales
Price
$27,000/$127,800
Gross
Profit
$ 3,600
Total
Sales
Price
$ 27,000
Sales
$12,000
Sales
Price Per Lot
$3,000
Cost Cost of
Per Lots
Lot Sold
$2,100 $ 8,400
No. of
Lots
9
Number
of Lots
Sold*
4
Group 1
Group 1
Cost of goods sold (see schedule)
9-24 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-8 (12–17 minutes)
Cost per
Chair
$56.70
Inventory of straight chairs
Straight chairs
Cost
Allocated
to Chairs
$22,680
Total
Cost
$59,850
Gross
Profit
$ 6,660
X
Relative Sales
Price
$36,000/$95,000
Sales
$18,000
Total
Sales
Price
$36,000
Cost of
Chairs
Sold
$11,340
Sales
Price
per Lot
$90
Cost
per
Chair
$56.70
No. of
Chairs
400
Number
of Chairs
Sold
200
Chairs
Lounge chairs
Chairs
Lounge chairs
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.
(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 $10,800 market decline entry was made on December
31, 2014, as indicated in (b), the entry when the materials are received
in January 2015 would be:
EXERCISE 9-10 (Continued)
This entry records the raw materials at the actual cost, eliminates the
EXERCISE 9-11 (8–13 minutes)
1.
20%
= 16.67% OR 16 2/3%.
100% + 20%
2.
25%
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
30,000
Goods available (at cost)
Sales revenue (at selling price)
Sales returns (at selling price)
Net sales (at selling price)
Less: Gross profit (30% of $930,000)
Net sales (at cost)
651,000
EXERCISE 9-12 (Continued)
(b) Gross profit as a percent of sales must be computed:
30%
= 23.08% of sales.
100% + 30%
Inventory, May 1 (at cost)
$160,000
Purchases (at cost)
640,000
Purchase discounts
30,000
Goods available (at cost)
Sales revenue (at selling price)
Sales returns (at selling price)
Net sales (at selling price)
Less: Gross profit (23.08% of $930,000)
Net sales (at cost)
715,356
Approximate inventory, May 31 (at cost)
$102,644
EXERCISE 9-13 (15–20 minutes)
(a)
Merchandise on hand, January 1
$ 38,000
Purchases
72,000
Less: Purchase returns and allowances
(2,400)
3,400
Total merchandise available (at cost)
Cost of goods sold*
75,000
Ending inventory
36,000
Less: Undamaged goods
10,900
*Gross profit =
= 25% of sales.
EXERCISE 9-13 (Continued)
(b)
Cost of goods sold = 66 2/3% of sales of $100,000 = $66,667
[$111,000 (as computed above) – $66,667]
Less: Undamaged goods
EXERCISE 9-14
Beginning inventory
$170,000
Purchases
390,000
560,000
Purchase returns
Goods available (at cost)
530,000
Sales revenue
Sales returns
Net sales
Less: Gross profit (40% X $626,000)
375,600
damage)
154,400
$21,000 X (1 – 40%)
realizable value)
EXERCISE 9-15 (10–15 minutes)
Beginning inventory (at cost)
$ 38,000
Purchases (at cost)
85,000
Goods available (at cost)
123,000
Sales revenue (at selling price)
$116,000
Less sales returns
4,000
Net sales
112,000
Less: Gross profit* (2/7 of $112,000)
32,000
Net sales (at cost)
80,000
Less: Goods on hand ($30,500 – $6,000)
Claim against insurance company
EXERCISE 9-16 (15–20 minutes)
Lumber
Millwork
Hardware
Inventory 1/1/14 (cost)
$ 250,000
$ 90,000
$ 45,000
Purchases to 8/18/14 (cost)
1,500,000
375,000
160,000
Cost of goods available
1,750,000
465,000
205,000
Deduct cost of goods sold*
1,664,000
410,000
150,000
Inventory 8/18/14
$ 55,000
EXERCISE 9-16 (Continued)
Computation for cost of goods sold:*
Lumber:
$2,080,000
= $1,664,000
1.25
Millwork:
= $410,000
1.30
*Alternative computation for cost of goods sold:
Markup on selling price: Cost of goods sold:
Lumber:
= 20% or 1/5
$2,080,000 X 80% = $1,664,000
Millwork:
= 3/13
$533,000 X 10/13 = $410,000
Hardware:
= 2/7
$210,000 X 5/7 = $150,000
EXERCISE 9-17 (20–25 minutes)
Ending inventory:
(a)
Gross profit is 45% of sales
Total goods available for sale (at cost)
$2,100,000
Sales (at selling price)
Less: Gross profit (45% of sales)
Sales (at cost)
(b)
Gross profit is 60% of cost
60%
= 37.5% markup on selling price
100% + 60%
Total goods available for sale (at cost)
$2,100,000
Sales (at selling price)
Less: Gross profit (37.5% of sales)
Sales (at cost)
(c)
Gross profit is 35% of sales
Total goods available for sale (at cost)
$2,100,000
Sales (at selling price)
Less: Gross profit (35% of sales)
Sales (at cost)
EXERCISE 9-17 (Continued)
(d)
Gross profit is 25% of cost
25%
= 20% markup on selling price
100% + 25%
Total goods available for sale (at cost)
$2,100,000
Sales (at selling price)
Less: Gross profit (20% of sales)
Sales (at cost)
Ending inventory (at cost)
EXERCISE 9-18 (20–25 minutes)
(a)
Cost
Retail
Beginning inventory
$ 58,000
$100,000
Purchases
122,000
200,000
Net markups
Totals
Net markdowns
Sales price of goods available
284,210
Deduct: Sales revenue
Ending inventory at retail
(b)
1.
$180,000 ÷ $300,000 = 60%
2.
$180,000 ÷ $273,865 = 65.73%
3.
$180,000 ÷ $310,345 = 58%
4.
$180,000 ÷ $284,210 = 63.33%
EXERCISE 9-18 (Continued)
(c)
1.
Method 3.
2.
Method 3.
3.
Method 3.
$186,000 – $123,038 = $62,962
EXERCISE 9-19 (12–17 minutes)
Cost
Retail
Beginning inventory
$ 200,000
$ 280,000
Purchases
1,375,000
2,140,000
Totals
1,575,000
2,420,000
Add: Net markups
Markups
$95,000
Markup cancellations
80,000
Deduct: Net markdowns
Markdowns
35,000
Markdowns cancellations
(5,000)
30,000
Sales price of goods available
2,470,000
Deduct: Sales revenue
2,200,000
EXERCISE 9-20 (20–25 minutes)
Cost
Retail
Beginning inventory
$30,000
$ 46,500
Purchases
48,000
88,000
Purchase returns
(2,000)
(3,000)
Freight on purchases
2,400
Totals
78,400
131,500
Add: Net markups
Markups
$10,000
Markup cancellations
(1,500)
Net markups
8,500
Deduct: Net markdowns
Markdowns
9,300
Markdowns cancellations
(2,800)
Net markdowns
6,500
Sales price of goods available
Deduct: Net sales ($99,000 – $2,000)
97,000
EXERCISE 9-21 (10–15 minutes)
(a) Inventory turnover:
2012
2011
2011
*EXERCISE 9-22 (25–35 minutes)
(a)
Conventional Retail Method
Cost
Retail
Inventory, January 1, 2013
$ 38,100
$ 60,000
Purchases (net)
130,900
178,000
169,000
238,000
Add: Net markups
Totals
$169,000
260,000
Deduct: Net markdowns
Sales price of goods available
247,000
Deduct: Sales (net)
167,000
Ending inventory at retail
Ending inventory at cost = 65% X $80,000 = $52,000
(b)
LIFO Retail Method
Cost
Retail
Inventory, January 1, 2013
$ 38,100
$ 60,000
Net purchases
130,900
178,000
Net markups
22,000
Net markdowns
Total (excluding beginning inventory)
130,900
187,000
Deduct sales (net)
167,000
Ending inventory at retail
*EXERCISE 9-22 (Continued)
Computation of ending inventory at LIFO cost, 2014:
Ending Inventory
at Retail Prices
Layers at
Retail Prices
Cost to Retail
(Percentage)
Ending Inventory
at LIFO Cost
$80,000
2013 $60,000
X
63.5%*
$38,100
*EXERCISE 9-23 (15–20 minutes)
(a)
Cost
Retail
Inventory, January 1, 2014
$14,000
$ 20,000
Net purchases
58,800
81,000
Freight-in
7,500
Net markups
9,000
Totals
Sales revenue
Net markdowns
Estimated theft
Ending inventory at retail
*EXERCISE 9-23 (Continued)
(b)
Cost
Retail
Purchases
$58,800
$81,000
Freight-in
7,500
Net markups
9,000
Net markdowns
(1,600)
Totals
$66,300
$88,400
Cost-to-retail ratio:
= 75%
Beginning inventory, 2014
$14,000
$20,000
Increment
4,800
Ending inventory, 2014
$26,400
*EXERCISE 9-24 (10–15 minutes)
(a)
Cost-to-retail ratio—beginning inventory:
$216,000
= 72%
$300,000
*($294,300 ÷ 1.09) X 72% = $194,400
*EXERCISE 9-24 (Continued)
(b)
Ending inventory at retail prices deflated $365,150 ÷ 1.09
$335,000
Beginning inventory at beginning-of-year prices
300,000
Beginning inventory (at cost)
*($364,800 ÷ $480,000)
*EXERCISE 9-25 (5–10 minutes)
Ending inventory at retail (deflated) $100,100 ÷ 1.10
$91,000
Beginning inventory at retail
*EXERCISE 9-26 (20–25 minutes)
(a)
Cost
Retail
Beginning inventory
$ 30,100
$ 50,000
Net purchases
108,500
150,000
Net markups
10,000
Totals
$138,600
210,000
Net markdowns
Sales revenue
Ending inventory at retail
$ 78,100
Cost-retail ratio = 66% ($138,600/$210,000)
(b)
Cost
Retail
Beginning inventory
$ 30,100
$ 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)
$138,600
205,000
Sales revenue
Ending inventory at retail (base year)
($78,100 ÷ 1.10)
$ 71,000
Cost-to-retail ratio for new layer:
$108,500/$155,000 = 70%
Layers:
Base layer
$50,000 X 1.00 X 60.2%* =
$ 30,100
New layer
($71,000 – $50,000) X 1.10 X 70% =
16,170
$ 46,270
*($30,100/$50,000)
(c)
Cost of goods available for sale
$138,600
Ending inventory at cost, from (b)
46,270
Cost of goods sold
$ 92,330
*EXERCISE 9-27 (20–25 minutes)
2013
Restate to base-year retail ($118,720 ÷ 1.06)
$112,000
Layers: 1. $100,000 X 1.00 X 54%* =
$ 54,000
2. $ 12,000 X 1.06 X 57% =
7,250
Ending inventory
$ 61,250
*$54,000 ÷ $100,000
2014
Restate to base-year retail ($138,750 ÷ 1.11)
$125,000
Layers: 1. $100,000 X 1.00 X 54% =
$ 54,000
2. $ 12,000 X 1.06 X 57% =
3. $ 13,000 X 1.11 X 60% =
8,658
Ending inventory
$ 69,908
2015
Restate to base-year retail ($125,350 ÷ 1.15)
$109,000
Layers: 1. $100,000 X 1.00 X 54% =
$ 54,000
2. $ 9,000 X 1.06 X 57% =
5,438
Ending inventory
$ 59,438
2016
Restate to base-year retail ($162,500 ÷ 1.25)
$130,000
Layers: 1. $100,000 X 1.00 X 54% =
$ 54,000
2. $ 9,000 X 1.06 X 57% =
3. $ 21,000 X 1.25 X 58% =
15,225
Ending inventory
$ 74,663
*EXERCISE 9-28 (5–10 minutes)
Inventory (beginning) ………………………………………………
Adjustment to Record Inventory at Cost* ………….
($212,600 – $205,000)
*Note: This account is an income statement account showing the effect of
changing from a lower-of-cost-or-market approach to a straight cost basis.