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Chapter 9: Q4ISTQ (page 499)

Assume that Darcy Industries had the following inventory values. Inventory cost (on December 31, 2017) \(1,500 Inventory market (on December 31, 2017) \)1,350 Inventory net realizable value (on December 31, 2017) \(1,320 Under IFRS, what is the inventory carrying value on December 31, 2017? (a) \)1,500. (b) \(1,570. (c) \)1,560. (d) $1,320

Short Answer

Expert verified

The correct option is “d.”

Step by step solution

01

Estimation of inventory value

(d) The inventory cost is $1,500, and the net realizable value is $1,320. Hence inventories will be reported at the net realizable value, as it is the lowest compared to the inventory cost.

02

Explanation of wrong options

(a) Inventories carrying value will not be equal to the cost, as market value and NRV is below the original cost.

(b) $1,570 incorrectly estimated.

(c) $1,560 incorrectly estimated.

Thus, the correct option is $1,320.

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Most popular questions from this chapter

Starfish Company (a company using GAAP and the LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish’s financials? (a) During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (b) During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (d) During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory methodare used as compared to GAAP and LIFO.

Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Inventory, May 1 $ 160,000 Purchases (gross) 640,000 Freight-in 30,000 Sales revenue 1,000,000 Sales returns 70,000 Purchase discounts 12,000 Instructions (a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.

Fuque Inc. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2018. Inventory, October 1, 2018 At cost \( 52,000 At retail 78,000 Purchases (exclusive of freight and returns) At cost 272,000 At retail 423,000 Freight-in 16,600 Purchase returns At cost 5,600 At retail 8,000 Markups 9,000 Markup cancellations 2,000 Markdowns (net) 3,600 Normal spoilage and breakage 10,000 Sales revenue 390,000 Instructions (a) Using the conventional retail method, prepare a schedule computing estimated lower-of-cost-or-market inventory for October 31, 2018. (b) A department store using the conventional retail inventory method estimates the cost of its ending inventory as \)60,000. An accurate physical count reveals only $47,000 of inventory at lower-of-cost-or-market. List the factors that may have caused the difference between the computed inventory and the physical count.

Malone Company determined its ending inventory at cost and at LCNRV at December 31, 2017, December 31, 2018, and December 31, 2019, as shown below. Cost NRV 12/31/17 \(650,000 \)650,000 12/31/18 780,000 712,000 12/31/19 905,000 830,000 Instructions (a) Prepare the journal entries required at December 31, 2018, and at December 31, 2019, assuming that a perpetual inventory system and the cost-of-goods-sold method of adjusting to LCNRV is used. (b) Prepare the journal entries required at December 31, 2018, and at December 31, 2019, assuming that a perpetual inventory is recorded at cost and reduced to LCNRV using the loss method.

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Net realizable value 14.50 19.20 15.20 10.40 16.40 Net realizable value less normal profit 12.80 17.60 13.75 8.80 14.80 Market (replacement cost) 14.80 17.20 12.80 9.70 16.80
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