Chapter9Inventories:AdditionalIssues

EXERCISES
Exercise91Requirement1

(1) (2) (3) (4) (5)

Ceiling Floor

NRVNP Designated Inventory

(NP= MarketValue Value
20% [Middlevalue [Lowerof
Product RC NRV ofcost) of(1)(3)] Cost (4)or(5)]

Gloves $330,000 $300,000 $228,000 $300,000 $360,000 $300,000

Bats 240,000 320,000 268,000 268,000 260,000 260,000

Balls 110,000 125,000 95,000 110,000 150,000 110,000

Uniforms 560,000 950,000 830,000 830,000 600,000

600,000

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

Theinventoryvalueis$1,270,000.

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

Exercise92
Merchandiseinventory,January1,2011 $4,500,000
Purchases 14,500,000
Freightin 1,000,000
Costofgoodsavailableforsale 20,000,000
Less:Costofgoodssold:
Sales $23,000,000
Less:Estimatedgrossprofitof40% (9,200,000) (13,800,000)

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 Estimatedlossfromfire $6,200,000

Exercise93

Cost Retail
Beginninginventory $40,000 $60,000
Plus: Netpurchases 28,250 37,000
Netmarkups 2,000
Less: Netmarkdowns ______ (1,500)
Goodsavailableforsale 68,250 97,500

$68,250
Costtoretailpercentage: =70%
$97,500

Less: Netsales (45,000)

Estimatedendinginventoryatretail $52,500
Estimatedendinginventoryatcost(70%x$52,500) (36,750)
Estimatedcostofgoodssold $31,500

Exercise94

Cost Retail
Beginninginventory $180,000 $300,000
Plus: Purchases 1,479,000 2,430,000
Freightin 30,000
Less: Purchasereturns (60,000) (105,000)
Plus: Netmarkups 90,000

2,715,000
$1,629,000
Costtoretailpercentage: =60%
$2,715,000
Less: Netmarkdowns _______ (45,000)

Goodsavailableforsale 1,629,000 2,670,000
Less:
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 Normalspoilage (63,000)
Netsales (2,340,000)

Estimatedendinginventoryatretail $267,000
Estimatedendinginventoryatcost(60%x$267,000) (160,200)
Estimatedcostofgoodssold $1,468,800

Exercise95
Cost Retail
Beginninginventory $213,840 $396,000
Plus: Netpurchases 360,000 765,000
Netmarkups 18,000
Less: Netmarkdowns _______ (33,000)
Goodsavailableforsale(excludingbeginninginventory) 360,000 750,000

Goodsavailableforsale(includingbeginninginventory) 573,840 1,146,000
$213,840
Baseyearcosttoretailpercentage: =54%
$396,000

$360,000
2011costtoretailpercentage: =48%
$750,000
Less: Netsales (690,000)
Estimatedendinginventoryatcurrentyearretailprices $456,000
Estimatedendinginventoryatcost(below) (238,838)
Estimatedcostofgoodssold $335,002
___________________________________________________________________________

Step1Step2Step3
EndingEndingInventoryInventory
InventoryInventoryLayersLayers
atYearendatBaseYearatBaseYearConvertedto
RetailPricesRetailPricesRetailPricesCost

$456,000
$456,000=$447,059$396,000(base) x1.00x54% =$213,840
(above)1.0251,059(2011) x1.02x48% =24,998

TotalendinginventoryatdollarvalueLIFOretailcost...................... $238,838
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Exercise96
1. Toincreaseinventoryby$1.6millionandincreaseretainedearningstowhatit
wouldhavebeenif2010costofgoodssoldhadbeencalculatedcorrectly.

Analysis:
2010 2011
Beginninginventory Beginninginventory U
Purchases Purchases
Less:Endinginventory U
Costofgoodssold O

Revenues
Less:Costofgoodssold O U=Understated
Less:Otherexpenses O=Overstated
Netincome U

Retainedearnings U
($inmillions)
Inventory........................................................... 1.6
Retainedearnings.......................................... 1.6

2. The2010financialstatementsthatwereincorrectasaresultoftheerrorwouldbe
retrospectively restated to reflect the correct cost of goods sold, (income tax
expense if taxes are considered), net income, ending inventory, and retained
earningswhenthosestatementsarereportedagainforcomparativepurposesin
the2011annualreport.

3. Becauseretainedearningsisoneoftheaccountsincorrect,thecorrectiontothat
accountisreportedasa priorperiodadjustment tothe2010retainedearnings
balanceinthecomparativestatementsofshareholdersequity.

4. Also,adisclosurenoteshoulddescribethenatureoftheerrorandtheimpactof
itscorrectiononeachyearsnetincome,incomebeforeextraordinaryitems,and
earningspershare.

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AlternateExerciseandProblemSolutions 95
PROBLEMS
Problem91
1.Averagecost
Cost Retail
Beginninginventory $140,000 $280,000
Plus: Purchases 420,000 690,000
Freightin 16,000
Less: Purchasereturns (12,000) (18,000)
Plus: Netmarkups 24,000
Less: Netmarkdowns _______ (36,000)
Goodsavailableforsale 564,000 940,000
$564,000
Costtoretailpercentage: =60%
$940,000
Less:
Normalspoilage (5,000)
Sales:
Netsales($700,00020,000) (680,000)
Employeediscounts (6,000)
Estimatedendinginventoryatretail $249,000
Estimatedendinginventoryatcost(60%x$249,000) (149,400)
Estimatedcostofgoodssold $414,600

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Problem91(concluded)

2.Conventional(average,LCM)
Cost Retail
Beginninginventory $140,000 $280,000
Plus: Purchases 420,000 690,000
Freightin 16,000
Less: Purchasereturns (12,000) (18,000)
Plus: Netmarkups 24,000

976,000
$564,000
Costtoretailpercentage: =57.79%
$976,000
Less: Netmarkdowns _______ (36,000)
Goodsavailableforsale 564,000 940,000

Normalspoilage (5,000)
Sales:
Netsales($700,00020,000) (680,000)
Employeediscounts (6,000)
Estimatedendinginventoryatretail $249,000
Estimatedendinginventoryatcost(57.79%x$249,000) (143,897)
Estimatedcostofgoodssold $420,103

Problem92
($in000s)
Cost Retail
Beginninginventory $128 $200
Plus: Netpurchases 1,072 1,600
Freightin 59
Netmarkups 6
Less: Purchasereturns (2) (3)
Netmarkdowns ___ (13)
Goodsavailableforsale(excludingbeginninginventory) 1,129 1,590
Goodsavailableforsale(includingbeginninginventory) 1,257 1,790
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 $128
Baselayercosttoretailpercentage: =64%
$200

$1,129
2011layercosttoretailpercentage: =71%
$1,590

Less: Netsales (1,465)

Estimatedendinginventoryatcurrentyearretailprices $325

Estimatedendinginventoryatcost(calculatedbelow) (205)

Estimatedcostofgoodssold $1,052
___________________________________________________________________________

Step1Step2Step3
EndingEndingInventoryInventory
InventoryInventoryLayersLayers
atYearendatBaseYearatBaseYearConvertedto
RetailPricesRetailPricesRetailPricesCost

$325
$325=$301$200(base) x1.00x64% = $128
(above)1.08101(2011) x1.08x71% = 77

TotalendinginventoryatdollarvalueLIFOretailcost...................... $205

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