Chapter9Inventories:AdditionalIssues

EXERCISES
Exercise91Requirement1

(1)

Product

(2)
Ceiling

(3)
Floor

(5)

NRVNP
Designated
(NP=
MarketValue
20%
[Middlevalue
ofcost)
of(1)(3)]

Cost

Inventory
Value
[Lowerof
(4)or(5)]

$300,000

$360,000

$300,000

268,000

268,000

260,000

260,000

125,000

95,000

110,000

150,000

110,000

950,000

830,000

830,000
Totals

RC

NRV

$330,000

$300,000

$228,000

Bats

240,000

320,000

Balls

110,000

Uniforms

560,000

Gloves

(4)

600,000

600,000

$1,370,000 $1,270,000

Theinventoryvalueis$1,270,000.
Requirement2
Lossfromwritedownofinventory:$1,370,0001,270,000=$100,000

Exercise92

Merchandiseinventory,January1,2013
Purchases
Freightin
Costofgoodsavailableforsale
Less:Costofgoodssold:
AlternateExerciseandProblemSolutions

$4,500,000
14,500,000
1,000,000
20,000,000
TheMcGrawHillCompanies,Inc.,2013
91

Sales
Less:Estimatedgrossprofitof40%
Estimatedlossfromfire

$23,000,000
(9,200,000)

(13,800,000)
$6,200,000

Exercise93

Beginninginventory
Plus: Netpurchases
Netmarkups
Less: Netmarkdowns
Goodsavailableforsale

Cost
$40,000
28,250
______
68,250

Retail
$60,000
37,000
2,000
(1,500)
97,500

$68,250
Costtoretailpercentage: =70%
$97,500
Less: Netsales
Estimatedendinginventoryatretail
Estimatedendinginventoryatcost(70%x$52,500)
Estimatedcostofgoodssold

(36,750)
$31,500

(45,000)
$52,500

Exercise94

Beginninginventory
Plus: Purchases
Freightin
Less: Purchasereturns
Plus: Netmarkups

TheMcGrawHillCompanies,Inc.,2013
92

Cost
Retail
$180,000 $300,000
1,479,000 2,430,000
30,000
(60,000)
(105,000)
90,000

2,715,000

IntermediateAccounting,7/e


$1,629,000

Costtoretailpercentage:
=60%

$2,715,000
Less: Netmarkdowns
Goodsavailableforsale
Less:
Normalspoilage
Netsales
Estimatedendinginventoryatretail
Estimatedendinginventoryatcost(60%x$267,000)
Estimatedcostofgoodssold

_______
1,629,000

(45,000)

2,670,000
(63,000)
(2,340,000)

(160,200)
$1,468,800

$267,000

Exercise95

Beginninginventory
Plus: Netpurchases
Netmarkups
Less: Netmarkdowns
Goodsavailableforsale(excludingbeginninginventory)
Goodsavailableforsale(includingbeginninginventory)
Baseyearcosttoretailpercentage:

Cost
$213,840
360,000
_______
360,000
573,840

Retail
$396,000
765,000
18,000
(33,000)
750,000

1,146,000

$213,840
=54%
$396,000

$360,000
=48%
2013costtoretailpercentage:
$750,000
Less: Netsales
Estimatedendinginventoryatcurrentyearretailprices
Estimatedendinginventoryatcost(below)
Estimatedcostofgoodssold

AlternateExerciseandProblemSolutions

(690,000)
$456,000
(238,838)
$335,002

TheMcGrawHillCompanies,Inc.,2013
93

___________________________________________________________________________
Step1Step2Step3
EndingEndingInventoryInventory
InventoryInventoryLayersLayers
atYearendatBaseYearatBaseYearConvertedto
RetailPricesRetailPricesRetailPricesCost
$456,000
$456,000=$447,059$396,000(base)
(above)1.0251,059(2013)

x1.00x54% =$213,840
x1.02x48% =24,998
$238,838

TotalendinginventoryatdollarvalueLIFOretailcost......................

Exercise96
1.

Toincreaseinventoryby$1.6millionandincreaseretainedearningstowhatit
wouldhavebeenif2012costofgoodssoldhadbeencalculatedcorrectly.
Analysis:

2012
Beginninginventory
Purchases
Less:Endinginventory
Costofgoodssold

Revenues
Less:Costofgoodssold
Less:Otherexpenses
Netincome

Retainedearnings

U
O

2013
Beginninginventory
Purchases

O
U

U=Understated
O=Overstated

U
($inmillions)

Inventory...........................................................
Retainedearnings..........................................

2.

1.6

1.6

The2012financialstatementsthatwereincorrectasaresultoftheerrorwouldbe
retrospectively restated to reflect the correct cost of goods sold, (income tax

TheMcGrawHillCompanies,Inc.,2013
94

IntermediateAccounting,7/e

expense if taxes are considered), net income, ending inventory, and retained
earningswhenthosestatementsarereportedagainforcomparativepurposesin
the2013annualreport.
3.

Becauseretainedearningsisoneoftheaccountsincorrect,thecorrectiontothat
accountisreportedasa priorperiodadjustment tothe2012retainedearnings
balanceinthecomparativestatementsofshareholdersequity.

4.

Also,adisclosurenoteshoulddescribethenatureoftheerrorandtheimpactof
itscorrectiononeachyearsnetincome,incomebeforeextraordinaryitems,and
earningspershare.

AlternateExerciseandProblemSolutions

TheMcGrawHillCompanies,Inc.,2013
95

PROBLEMS
Problem91
1.Averagecost
Beginninginventory
Plus: Purchases
Freightin
Less: Purchasereturns
Plus: Netmarkups
Less: Netmarkdowns
Goodsavailableforsale
Costtoretailpercentage:
Less:

$564,000
=60%
$940,000

Normalspoilage
Sales:
Netsales($700,00020,000)
Employeediscounts

Estimatedendinginventoryatretail
Estimatedendinginventoryatcost(60%x$249,000)
Estimatedcostofgoodssold

TheMcGrawHillCompanies,Inc.,2013
96

Cost
Retail
$140,000 $280,000
420,000
690,000
16,000
(12,000)
(18,000)
24,000
_______
(36,000)
564,000
940,000

(5,000)

(149,400)
$414,600

(680,000)
(6,000)
$249,000

IntermediateAccounting,7/e

Problem91(concluded)
2.Conventional(average,LCM)
Beginninginventory
Plus: Purchases
Freightin
Less: Purchasereturns
Plus: Netmarkups
Costtoretailpercentage:
Less: Netmarkdowns
Goodsavailableforsale

$564,000
=57.79%
$976,000

Normalspoilage
Sales:
Netsales($700,00020,000)
Employeediscounts

Estimatedendinginventoryatretail
Estimatedendinginventoryatcost(57.79%x$249,000)
Estimatedcostofgoodssold

Cost
Retail
$140,000 $280,000
420,000
690,000
16,000
(12,000)
(18,000)
24,000

976,000

_______
564,000

(36,000)
940,000
(5,000)

(143,897)
$420,103

(680,000)
(6,000)
$249,000

Problem92
($in000s)

Beginninginventory
Plus: Netpurchases
Freightin
Netmarkups
Less: Purchasereturns
Netmarkdowns
Goodsavailableforsale(excludingbeginninginventory)
AlternateExerciseandProblemSolutions

Cost
$128
1,072
59
(2)
___
1,129

Retail
$200
1,600
6
(3)
(13)
1,590

TheMcGrawHillCompanies,Inc.,2013
97

Goodsavailableforsale(includingbeginninginventory)

1,257

1,790

$128
Baselayercosttoretailpercentage: =64%
$200
$1,129
2013layercosttoretailpercentage: =71%
$1,590
Less: Netsales
Estimatedendinginventoryatcurrentyearretailprices
Estimatedendinginventoryatcost(calculatedbelow)
Estimatedcostofgoodssold

(1,465)
$325
(205)

$1,052

___________________________________________________________________________
Step1Step2Step3
EndingEndingInventoryInventory
InventoryInventoryLayersLayers
atYearendatBaseYearatBaseYearConvertedto
RetailPricesRetailPricesRetailPricesCost
$325
$325=$301$200(base)
(above)1.08101(2013)

x1.00x64% =
$128
x1.08x71% = 77

TotalendinginventoryatdollarvalueLIFOretailcost......................

TheMcGrawHillCompanies,Inc.,2013
98

$205

IntermediateAccounting,7/e