AC 302 CHAPTER 9 QUESTION AND PROBLEMS
Exercise 9 QUESTION 1
Name Date
Instructor Course
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E9-1 (Lower-of-Cost-or-Market) The inventory of Oheto Company on December 31, 2013, consists of the following items.
Part No. Quantity Cost Per Unit Cost to Replace per Unit
110 600 $95 $100.00
111 1,000 60 $52.00
112 500 80 $76.00
113 200 170 $180.00
120 400 205 $208.00
121 1,600 16 $14.00
122 300 240 $235.00
Part No. 121 is obsolete and has a realizable value of each as scrap: $0.50
Part No. Quantity "Per Unit
Cost" Market Total Cost "Total
Market" "Lower of
Cost or
Market"
110 600 $95 $100.00 Formula Formula Formula
111 1,000 60 52.00 Formula Formula Formula
112 500 80 76.00 Formula Formula Formula
113 200 170 180.00 Formula Formula Formula
120 400 205 208.00 Formula Formula Formula
121 1,600 16 14.00 Formula Formula Formula
122 300 240 $235.00 Formula Formula Formula
Totals Formula Formula Formula
Instructions:
Complete the table above by inserting the correct values or formulas into the yellow highlighted cells. From this data, answer the following two questions:
"(a) Determine the inventory as of December 31, 2013, by the lower-of-cost-or-market method, applying
this method directly to each item."
The valuation of inventory as of December 31, 2013, by the lower of cost or market method, as applied directly to each item is: Value
"(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the total
of the inventory."
The valuation of inventory as of December 31, 2013, by the lower of cost or market method, as applied to total inventory is: Value
Exercise 9-7
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E9-7 (Relative Sales Value Method) Larsen Realty Corporation purchased a tract of unimproved land for
$55,000 . This land was improved and subdivided into building lots at an additional cost of $30,000
These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follows.
Group No. of Lots Price per Lot
1 9 $3,000
2 15 $4,000
3 19 $2,000
Operating expenses for the year allocated to this project total $18,200 Lots unsold at the year-end
as follows:
Group No. of Lots
1 5
2 7
3 2
Instructions:
At the end of the fiscal year Larsen Realty Corporation instructs you to arrive at the net income realized on this operation to date.
Group No. of lots "Sales price
per lot" "Total
sales price" "Relative sales
price as %" Cost total "Cost allocated
to lots" Cost per lot
1 Number Amount Amount Formula Amount Formula Formula
2 Number Amount Amount Formula Amount Formula Formula
3 Number Amount Amount Formula Amount Formula Formula
Formula Formula Formula
Lots Sold
Group No. of Lots "Price
per lot" Total selling price Cost per lot "Extended
cost" Gross Profit
1 Number Amount Formula Amount Formula Formula
2 Number Amount Formula Amount Formula Formula
3 Number Amount Formula Amount Formula Formula
Formula Formula Formula Formula
Sales (see schedule) Amount
Cost of goods sold (see schedule) Amount
Gross profit Formula
Operating expenses Amount
Net income Formula
Problem 9-2
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P9-2 (Lower-of-Cost-or-Market) Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes in northern New Jersey and southern New York. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2012, and Jim Alcide, controller for Garcia, has gathered the following data concerning inventory.
At May 31, 2012, the balance in Garcia- Raw Material Inventory account was $408,000
and the Allowance to Reduce Inventory to Market had a credit balance of $27,500
Alcide summarized the relevant inventory cost and market data at May 31, 2012, in the schedule below.
Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia- May 31, 2012, financial statements for inventory under the lower-of-cost-or-market rule as applied to each item in inventory. Devereaux expressed concern over departing from the cost principle.
Cost "Replacement
Cost" Sales Price "Net Realizable
Value" Normal Profit
Aluminum siding $70,000 $62,500 $64,000 $56,000 $5,100
Cedar shake siding 86,000 79,400 94,000 84,800 7,400
Louvered glass doors 112,000 124,000 186,400 168,300 18,500
Thermal windows 140,000 126,000 154,800 140,000 15,400
Total $408,000 $391,900 $499,200 $449,100 $46,400
Instructions:
(a) (1) Determine the proper balance in the Allowance to Reduce Inventory to Market at May 31, 2012.
Calculations of Proper Balance on the Allowance to Reduce Inventory to Market At May 31, 2012.
Cost "Replacement
Cost" "NRV
(Ceiling)" "NRV less
normal profit
(Floor)" LCM
Aluminum siding Amount Amount Amount Amount Amount
Cedar shake siding Amount Amount Amount Amount Amount
Louvered glass doors Amount Amount Amount Amount Amount
Thermal windows Amount Amount Amount Amount Amount
Totals Formula Formula Formula Formula Formula
Inventory cost Amount
LCM valuation Amount
Allowance at May 31, 2012 Formula
(a) (2) For the fiscal year ended May 31, 2012, determine the amount of the gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to Market.
Enter text answer here as appropriate.
Balance prior to adjustment Amount
Required balance Amount
Loss to be recorded Formula
(b) Explain the rationale for the use of the lower of cost or market rule as it applies to inventories.
Enter text answer here as appropriate.
Enter text answer here as appropriate.
Problem 9-6
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P9-6 (Retail Inventory Method) The records for the Clothing Department of Sharapova- Discount Store are summarized below for the month of January.
Inventory, January 1, at retail: $25,000 at cost: $17,000
Purchases in January, at retail: 137,000 at cost: 82,500
Freight-in, 7,000
Purchases returns, at retail: 3,000 at cost: 2,300
Transfers in from suburban branch, at retail: 13,000 at cost: 9,200
Net markups: 8,000
Net markdowns: 4,000
Inventory losses due to normal breakage, etc, at retail: at retail: 400
Sales at retail: 95,000
Sales returns: 2,400
Instructions:
(a) Compute the inventory for this department as of January 31, at Retail
Cost Retail
Beginning Inventory Amount Amount
Title Amount Amount
Title Amount
Title Amount Amount
Transfers in from suburban branch Amount Amount
Formula Formula
Net markups Amount
Formula
Net markdowns Amount
Title Amount
Title Amount
Title Formula
Title Amount
Ending inventory at retail Formula
Cost-to-retail ratio = Value = Formula
Value
(b) Compute the inventory for this department as of January 31, at lower of average cost or market.
Ending inventory at lower of average cost or market Value Percentage Formula
Note: Due to significant digits of worksheets and calculators, small differences may occur.
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