Chapter 9: Q9Q (page 474)
Question:Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?
The relative sales value basis is used in the lump-sum purchase scenario.
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John Olerud Ltd., a local retailing concern in the Bronx, New York, has decided to change from the conventional retail inventory method to the LIFO retail method starting on January 1, 2018. The company recomputed its ending inventory for 2017 in accordance with the procedures necessary to switch to LIFO retail. The inventory computed was \(212,600. Instructions Assuming that John Olerud Ltd.’s ending inventory for 2017 under the conventional retail inventory method was \)205,000, prepare the appropriate journal entry on January 1, 2018.
Briefly describe the valuation of (a) biological assets and (b) agricultural produce
On April 15, 2018, fire damaged the office and warehouse of Stanislaw Corporation. The only accounting record saved was the general ledger, from which the balance sheet data below was prepared. STANISLAW CORPORATION MARCH 31, 2018 Dr. Cr. Cash \( 20,000 Accounts receivable 40,000 Inventory, December 31, 2017 75,000 Land 35,000 Buildings 110,000 Accumulated depreciation \) 41,300 Equipment 3,600 Accounts payable 23,700 Other accrued expenses 10,200 Common stock 100,000 Retained earnings 52,000 Sales revenue 135,000 Purchases 52,000 Miscellaneous expense 26,600 . \(362,200 \)362,200The following data and information have been gathered. 1. The fiscal year of the corporation ends on December 31. 2. An examination of the April bank statement and canceled checks revealed that checks written during the period April 1–15 totaled \(13,000: \)5,700 paid to accounts payable as of March 31, \(3,400 for April merchandise shipments, and \)3,900 paid for other expenses. Deposits during the same period amounted to \(12,950, which consisted of receipts on account from customers with the exception of a \)950 refund from a vendor for merchandise returned in April. 3. Correspondence with suppliers revealed unrecorded obligations at April 15 of \(15,600 for April merchandise shipments, including \)2,300 for shipments in transit (f.o.b. shipping point) on that date. 4. Customers acknowledged indebtedness of \(46,000 at April 15, 2018. It was also estimated that customers owed another \)8,000 that will never be acknowledged or recovered. Of the acknowledged indebtedness, \(600 will probably be uncollectible. 5. The companies insuring the inventory agreed that the corporation’s fire-loss claim should be based on the assumption that the overall gross profit rate for the past 2 years was in effect during the current year. The corporation’s audited financial statements disclosed this information: Year Ended December 31 2017 2016 Net sales \)530,000 \(390,000 Net purchases 280,000 235,000 Beginning inventory 50,000 66,000 Ending inventory 75,000 50,000 6. Inventory with a cost of \)7,000 was salvaged and sold for $3,500. The balance of the inventory was a total loss. Instructions Prepare a schedule computing the amount of inventory fire loss. The supporting schedule of the computation of the gross profit should be in good form.
Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the followingInventory (beginning) \( 80,000 Sales revenue \)415,000 Purchases 290,000 Sales returns 21,000 Purchase returns 28,000 Gross profi t % based on net selling price 35%Merchandise with a selling price of \(30,000 remained undamaged after the fire, and damaged merchandise has a net realizable value of \)8,150. The company does not carry fire insurance on its inventory. Instructions Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)
Question:Explain the rationale for the ceiling and floor in the lower-of-cost-or-market method of valuing inventories.
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