Ch 9 Assigned Homework Solutions EXERCISE 9 2 10 15 minutes Net Realizable Value Less Normal Profit Floor Item Net Realizable Value Ceiling D 90 70 E 80 60 72 72 80 72 F 65 45 70 65 80 65 G 65 45 30 45 80 45 H 80 60 70 70 50 50 I 60 40 30 40 36 36 Replacement Cost Designated Market Cost LCM 120 90 75 75 Estimated selling price Estimated selling expense 120 30 90 Net realizable value Normal profit margin 90 20 70 EXERCISE 9 4 10 15 minutes a 12 31 13 Cost of Goods Sold 19 000 Inventory 19 000 12 31 14 Cost of Goods Sold 15 000 Inventory 15 000 b 12 31 13 Loss Due to Market Decline of Inventory 19 000 Allowance to Reduce Inventory to Market 19 000 12 31 14 Allowance to Reduce Inventory to Market 4 000 Loss Due to Market Decline of Inventory 4 000 EXERCISE 9 4 Continued Cost of inventory at 12 31 13 346 000 Lower of cost or market at 12 31 13 327 000 Allowance amount needed to reduce inventory to market a 19 000 Cost of inventory at 12 31 14 410 000 Lower of cost or market at 12 31 14 395 000 Allowance amount needed to reduce inventory to market b Recovery of previously recognized loss 15 000 a b 19 000 15 000 4 000 c Both methods of recording lower of cost or market adjustments have the same effect on net income 27 000 60 000 40 800 3 000 4 000 2 400 22 400 25 200 2 800 1 680 56 000 8 400 2 100 80 000 36 000 32 000 12 000 Sales 5 800 Net income Sold Cost of Lots 18 200 Operating expenses Lot Cost Per 24 000 Gross profit 24 000 10 800 9 600 3 600 Gross Profit 56 000 89 460 X 40 800 127 800 Cost of goods sold see schedule 89 460 X 60 000 127 800 80 000 89 460 Cost Total X 27 000 127 800 Relative Sales Price Sales revenue see schedule 127 800 Total Sales Price Price Per Lot Sales 89 460 28 560 42 000 18 900 Cost Lots Allocated to 2 100 1 680 2 800 Cost Per Lot No of Lots Cost Allocated EXERCISE 9 7 15 20 minutes 27 Total 17 2 15 15 Group 3 15 7 8 8 Group 2 9 5 4 4 17 Group 3 Group 1 15 Group 2 Number of Lots Sold 9 Group 1 No of EXERCISE 9 14 Beginning inventory 170 000 Purchases 390 000 560 000 Purchase returns 30 000 Goods available at cost Sales revenue Sales returns 530 000 650 000 24 000 Net sales 626 000 Less Gross profit 40 X 626 000 250 400 375 600 Estimated ending inventory unadjusted for damage 154 400 Less Goods on hand undamaged at cost 21 000 X 1 40 12 600 Less Goods on hand damaged at net realizable value Fire loss on inventory 5 300 136 500 EXERCISE 9 22 25 35 minutes a Conventional Retail Method Inventory January 1 2013 Purchases net Add Net markups Totals Cost Retail 38 100 60 000 130 900 178 000 169 000 238 000 22 000 169 000 260 000 Deduct Net markdowns 13 000 Sales price of goods available 247 000 Deduct Sales net 167 000 Ending inventory at retail 80 000 169 000 Cost to retail ratio 65 260 000 Ending inventory at cost 65 X 80 000 52 000 b LIFO Retail Method Inventory January 1 2013 Net purchases Cost Retail 38 100 60 000 130 900 178 000 Net markups 22 000 Net markdowns 13 000 Total excluding beginning inventory 130 900 187 000 Total including beginning inventory 169 000 247 000 Deduct sales net Ending inventory at retail 167 000 80 000 130 900 Cost to retail ratio 70 187 000 Computation of ending inventory at LIFO cost 2014 Ending Inventory at Retail Prices Layers at Retail Prices 80 000 2013 60 000 2014 20 000 Cost to Retail Percentage Ending Inventory at LIFO Cost X 63 5 38 100 X 70 0 14 000 52 100 38 100 60 000 prior years cost to retail