(Lower-of-Cost-or-Market) E9-1 The inventory of 3T Company on December 31, 2008, consists of the
following items.
Part No.
Quantity Cost per Unit
Cost to Replace per Unit
Cost
Market
110
600
90
100
54,000
60,000
111
1,000
60
52
60,000
52,000
112
500
80
76
40,000
38,000
113
200
170
180
34,000
36,000
120
400
205
208
82,000
83,200
121
1,600
16
14
25,600
320
122
300
240
235
72,000
70,500
a Part No. 121 is obsolete and has a realizable value of $0.20 each as scrap. 367,600
340,020
Instructions
(a) Determine the inventory as of December 31, 2008, by the lower-of-cost-or-market method,
applying this method directly to each item.
$330,820
(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the total
of the inventory.
$340,020
Lower
54,000
52,000
38,000
34,000
82,000
320
70,500
330,820
E9-12 (Gross Profit Method) 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
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.
Beginning inventory
$160,000
Purchases
640,000
Freight-in
30,000
Purchase discounts
(12,000)
Goods available
818,000
Sales
1,000,000
Sales returns
(70,000)
Net sales
930,000
Less: Gross profit
279,000
Sales
651,000
Approximate inventory (at cost) $167,000
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.
Beginning inventory
$160,000
Purchases
640,000
Freight-in
30,000
Purchase discounts
(12,000)
Goods available
818,000
Sales
1,000,000
Sales returns
(70,000)
Net sales
930,000
Less: Gross profit
214,644
Sales
715,356
Approximate inventory (at cost) $102,644
E9-19 (Retail Inventory Method) Presented below is information related to Ricky Henderson
Company.
Cost
Retail
Beginning inventory
$200,000 $280,000
Purchases
1,375,000 2,140,000
Markups
95,000
Markup cancellations
15,000
Markdowns
35,000
Markdown cancellations
5,000
Sales
2,200,000
Instructions
Compute the inventory by the conventional retail inventory method.
Beginning inventory
Net purchases
Net additional markups
$200,000
1,375,000
$280,000
2,140,000
80,000
2,500,000
(30,000)
###
$270,000
###
Net markdowns
Sales
Ending invnetory
Establishment of cost-to-retail percentage
Inventory at cost
Inventory at retail
Cost-to retail ratio
Inventory at cost under conventional retail
63%
x
270,000
63%
$170,100
E10-5 (Treatment of Various Costs) Ben Sisko Supply Company, a newly formed corporation, incurred
the following expenditures related to Land, to Buildings, and to Machinery and Equipment.
Land
Buildings Machinery Other
Abstract companys fee for title search
$520
520
Architects fees
3,170
3,170
Cash paid for land dilapidated and building thereon
87,000
87,000
Removal of old building
20,000
Less: Salvage
5,500
14,500
14,500
Interest on short-term loans during construction
7,400
7,400
Excavation before construction for basement
19,000
19,000
Machinery purchased (subject to 2% cash discount, which was not taken) 55,000
53,900
1,100
Freight on machinery purchased
1,340
1,340
Storage charges on machinery, necessitated by noncompletion of
building when machinery was delivered
2,180
2,180
New building constructed (building construction took 6 months from
date of purchase of land and old building)
485,000
485,000
Assessment by city for drainage project
1,600
1,600
Hauling charges for delivery of machinery from storage to new building
620
620
Installation of machinery
2,000
2,000
Trees, shrubs, and other landscaping after completion of building
(permanent in nature)
5,400
5,400
Instructions
109,020
514,570
57,240
3,900
Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment.
Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Indicate
how any costs not debited to these accounts should be recorded.
Land
$109,020
Buildings
$514,570
Machinery and Equipment $57,240
Miscallaneous expense
$3,900
E10-12 (Entries for Asset Acquisition, Including Self-Construction) Below are transactions related to
Fred Couples Company.
(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The market value of
this land is determined to be $81,000.
Land
81,000
Contribution revenue
81,000
(b) 13,000 shares of common stock with a par value of $50 per share are issued in exchange for land
and buildings. The property has been appraised at a fair market value of $810,000, of which
$180,000 has been allocated to land and $630,000 to buildings. The stock of Fred Couples Company
is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago
at $65 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $58
per share.
Land
180,000
Buildings
630,000
Common Stock
Additional Paid-in Capital
650,000
160,000
(c) No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead
the amounts properly chargeable to plant asset accounts for machinery constructed during the
year. The following information is given relative to costs of the machinery constructed.
Materials used
$12,500
Factory supplies used
900
Direct labor incurred
15,000
Additional overhead (over regular) caused by construction
2,700
of machinery, excluding factory supplies used
Fixed overhead rate applied to regular manufacturing of direct labor cost
60% operations
Cost of similar machinery if it had been purchased from
outside suppliers
44,000
Machinery
Materials
Direct labor
Factory overhead
40,100
12,500
15,000
12,600