CHAPTER 9
SOLUTIONS TO B EXERCISES
E9-1B (15–20 minutes)
Lower-of–
Part No.
Quantity
Per Unit
Total
Cost
Total
Market
Cost-or–
Market
Cost
10
900
$135
$121,500
$135,000
$121,500
11
1,500
90
135,000
117,000
117,000
13
300
255
76,500
81,000
76,500
20
600
308
184,800
187,200
184,800
21
2,400
24
57,600
480
22
450
360
162,000
158,625
158,625
E9-2B (10–15 minutes)
Item
Net
Realizable
Value
(Ceiling)
Net
Realizable
Value
Less
Normal
Profit
(Floor)
Replacement
Cost
Designated
Market
Cost
LCM
D
$180*
$140**
$240
$180
$150
$150
I
E9-3B (15–20 minutes)
Item
No.
Cost
per
Unit
Replacement
Cost
Net
Realizable
Value
Net Real.
Value
Less
Normal
Profit
Designated
Market
Value
LCM
Quantity
Final
Inventory
Value
A
$8.10
$8.00
$8.65*
$7.75**
$8.00
$8.00
1,200
$ 9,600
B
6.00
5.60
5.55
5.05
5.55
5.55
600
3,330
C
5.50
5.00
6.60
5.60
5.60
5.50
200
1,100***
D
7.25
7.50
7.50
6.60
7.50
7.25
700
5,075
E
2.10
2.00
2.15
1.95
2.00
2.00
1,000
2,000
F
4.05
4.00
4.60
3.85
4.00
4.00
500
2,000
G
8.75
8.15
8.40
7.90
8.15
8.15
2,000
H
9.95
9.00
9.20
9.20
9.20
300
2,760
E9-4B (10–15 minutes)
(a)
12/31/13
Cost of Goods Sold …………………………..
47,500
Inventory ……………………………………………………….
47,500
12/31/14
Cost of Goods Sold …………………………..
37,500
Inventory ……………………………………………………….
37,500
to Market ……………………………………………………..
47,500
E9-4B (Continued)
12/31/14
Allowance to Reduce Inventory
to Market ……………………………………………………….
10,000*
Recovery of Loss Due to
Market Decline of Inventory …………………………..
10,000
*Cost of inventory at 12/31/13 ………………………………
$ 865,000
Lower-of-cost-or-market at 12/31/13 …………………..
(817,500)
Allowance amount needed to reduce inventory
Cost of inventory at 12/31/14 ……………………………..
$1,025,000
Lower-of-cost-or-market at 12/31/14 …………………..
Allowance amount needed to reduce inventory
Recovery of previously recognized
loss
(c)
Both methods of recording lower-of-cost-or-market adjustments have
the same effect on net income.
E9-5B (20–25 minutes)
(a)
February
March
April
Sales
$71,000
$76,000
$67,000
Cost of goods sold
Inventory, beginning
21,500
23,000
19,010
Purchases
49,000
43,000
51,000
Cost of goods available
70,500
66,000
70,010
Inventory, ending
23,000
19,010
24,000
Cost of goods sold
47,500
46,990
46,010
Gross profit
23,500
29,010
20,990
fluctuations of inventory*
$22,500
$29,000
$22,600
*
Jan. 31
Mar. 31
Apr. 30
Inventory at cost
$21,500
$19,010
$24,000
Inventory at the lower-of-cost-
or-market
20,000
16,500
23,100
Allowance amount needed to
E9-5B (Continued)
(b)
Jan. 31
Loss Due to Market Decline of Inventory …..
1,500
Allowance to Reduce Inventory
to Market ……………………………………..
1,500
Allowance to Reduce Inventory
to Market ……………………………………..
1,000
Allowance to Reduce Inventory
to Market ……………………………………..
Recovery of Loss Due to Market
Decline of Inventory ……………………..
1,610
E9–6B (15-20 minutes)
Net realizable value (ceiling)
$56 – $18 = $38
Net realizable value less normal profit (floor)
$38 – $ 4 = $34
Replacement cost
$40
Designated market
$38
Ceiling
Cost
$48
$38
9-6 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only)
E9-7B (15–20 minutes)
Cost Per Lot
(Cost Allocated/
No. of Lots)
$19,403
$457,916
Group 3
Cost
Allocate
d to Lots
$407,471
Total
Cost
$735,000
X
Relative Sales
Price
$525,000/$947,000
Gross
Profit
$ 67,164
44,770
Total
Sales
Price
$ 525,000
Sales
$300,000
200,000
Sales
Price Per Lot
$25,000
Cost Cost of
Per Lots
Lot Sold
$19,403 $232,836
15,523 155,230
No. of
Lots
21
Number
of Lots
Sold*
12
10
Group 1
Group 1
Group 2
$590,000
132,084
Sales (see schedule)
Gross profit
Operating expenses
Group 3
E9-8B (12–17 minutes)
Total estimated selling price:
Lounge chairs, 80 X $45 ………………………………………….
$3,600
Armchairs, 60 X $40 ………………………………………………..
Straight chairs, 140 X $25 ……………………………………….
$9,500
Sales during 2014:
40 X $45 …………………………………………………………………
$1,800
20 X $40 …………………………………………………………………
24 X $25 …………………………………………………………………
600
Ratio of cost to selling price, $5,985 ÷ $9,500……………………
63%
Gross profit realized in 2014, (100% – 63%) X $3,200 ………..
$1,184
Inventory on December 31, 2014, $5,985 – ($3,200 X 63%) …
$3,969
E9-9B (5 minutes)
Commitments) ………………………………………………………
Estimated Liability on Purchase
Commitments ……………………………………………….
15,000
Unrealized Holding Loss—Income (Purchase
E9-10B (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
(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 $15,000 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:
E9-11B (8–13 minutes)
1.
25%
= 33.33% OR 33 1/3%.
100% – 25%
= 25%.
100% – 20%
E9-12B (10–15 minutes)
(a)
Inventory, May 1 (at cost) ……………………………..
$ 40,000
Purchases (gross) (at cost) ………………………….
160,000
Purchase discounts …………………………………….
(3,000)
7,500
Goods available (at cost) ……………………..
Sales (at selling price) ………………………………….
Sales returns (at selling price)………………………
Net sales (at selling price) …………………………...
Less: Gross profit (25% of $232,500) …………….
Sales (at cost) …………………………………….
174,375
Approximate inventory, May 31
E9-12B (Continued)
(b) Gross profit as a percent of sales must be computed:
Inventory, May 1 (at cost) ………………………………………..
$ 40,000
Purchases (gross) (at cost) ……………………………………..
160,000
Purchase discounts ………………………………………………..
7,500
Goods available (at cost) …………………………..
Sales (at selling price) …………………………..………………..
$250,000
Sales returns (at selling price) …………………………..
(17,500)
Net sales (at selling price) ……………………………………….
Sales (at cost) = Sales/(1 + .25) ………………………..
186,000
Approximate inventory, May 31
E9-13B (15–20 minutes)
(a)
Merchandise on hand, January 1 …………………………..
$ 76,000
Purchases ………………………………………………………
$144,000
Less: Purchase returns and allowances …………..
(4,800)
Net purchases ………………………………………………..
Freight-in ……………………………………………………….
6,800
Total merchandise available for sale ………………………..
Cost of goods sold* ………………………………………………..
Ending inventory …………………………………………….
Less: Undamaged goods …………………………..
(21,800)
(b)
Cost of goods sold = 75% of sales of
$200,000 = $150,000
E9-14B (10–15 minutes)
Beginning inventory …………………………………………..
$ 210,000
Purchases …………………………………………………………
805,000
1,015,000
Purchase returns ……………………………………………….
Goods available (at cost) ……………………………………
Sales …………………………………………………………………
Sales returns ……………………………………………………..
Net sales ……………………………………………………………
Less: Gross profit (20% X $899,000) …………………..
E9-15B (10–15 minutes)
Beginning inventory (at cost) ……………………………..
$ 78,000
Purchases (at cost) …………………………………………….
112,000
Goods available (at cost) …………………………...
190,000
Sales (at selling price) ………………………………………..
Less sales returns ……………………………………………..
Net sales ……………………………………………………………
Less: Gross profit* (16.67% of $88,000) ………………
Net sales (at cost) ………………………………………
Estimated inventory (at cost) ………………………………
116,670