Accounting, Name:
Solution
Date:
Instructor:
Course:
Intermediate 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Part No. 121 is obsolete and has a realizable value of each as scrap: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.
110
111
112
113
120
121
122
Totals
Quantity
600
1,000
500
200
400
1,600
300
Per Unit
Cost
$95
60
80
170
205
16
240
Market
$100.00
52.00
76.00
180.00
208.00
14.00
$235.00
Total Cost
$57,000
60,000
40,000
34,000
82,000
25,600
72,000
$370,600
Total
Market
$60,000
52,000
38,000
36,000
83,200
800
70,500
$340,500
Lower of
Cost or
Market
$57,000
52,000
38,000
34,000
82,000
800
70,500
$334,300
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:
$334,300
(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:
$340,500
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Exercise 9-1 Solution, Page 1 of 8, 03/29/2012, 01:32:14
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Part No. 121 is obsolete and has a realizable value of each as scrap: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.
110
111
112
113
120
121
122
Totals
Quantity
600
1,000
500
200
400
1,600
300
Per Unit
Cost
$95
60
80
170
205
16
240
Market
$100.00
52.00
76.00
180.00
208.00
14.00
$235.00
Total Cost
Formula
Formula
Formula
Formula
Formula
Formula
Formula
Formula
Total
Market
Formula
Formula
Formula
Formula
Formula
Formula
Formula
Formula
Lower of
Cost or
Market
Formula
Formula
Formula
Formula
Formula
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
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Exercise 9-1, Page 2 of 8, 03/29/2012, 01:32:14
Name:
Solution
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
as follows:
Group
No. of Lots
1
5
2
7
3
2
$18,200
Lots unsold at the year-end
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
1
2
3
No. of lots
9
15
19
Sales price
per lot
$3,000
4,000
2,000
Total
sales price
$27,000
60,000
38,000
$125,000
Relative
sales
price as %
22%
48%
30%
100%
Cost total
$85,000
85,000
85,000
Cost allocated
to lots
Cost per lot
$18,360
$2,040
$40,800
$2,720
$25,840
$1,360
$85,000
Lots Sold
Group
1
2
3
No. of Lots
4
8
17
29
Price
Total selling
per lot
price
Cost per lot
$3,000
$12,000
$2,040
4,000
32,000
2,720
2,000
34,000
1,360
$78,000
Sales (see schedule)
Cost of goods sold (see schedule)
Gross profit
Operating expenses
Net income
Extended
cost
$8,160
21,760
23,120
$53,040
Gross Profit
$3,840
$10,240
10,880
$24,960
$78,000
53,040
24,960
18,200
$6,760
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Exercise 9-7 Solution, Page 3 of 8, 03/29/2012, 01:32:14
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
as follows:
Group
No. of Lots
1
5
2
7
3
2
$18,200
Lots unsold at the year-end
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
1
2
3
No. of lots
Number
Number
Number
Relative
Sales price
Total
sales
per lot
sales price
price as %
Amount
Amount Formula
Amount
Amount Formula
Amount
Amount Formula
Formula Formula
Cost total
Amount
Amount
Amount
Cost allocated
to lots
Cost per lot
Formula
Formula
Formula
Formula
Formula
Formula
Formula
Lots Sold
Group
1
2
3
No. of Lots
Number
Number
Number
Formula
Price
Total selling
per lot
price
Cost per lot
Amount
Formula
Amount
Amount
Formula
Amount
Amount
Formula
Amount
Formula
Sales (see schedule)
Cost of goods sold (see schedule)
Gross profit
Operating expenses
Net income
Extended
cost
Formula
Formula
Formula
Formula
Gross Profit
Formula
Formula
Formula
Formula
Amount
Amount
Formula
Amount
Formula
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Exercise 9-7, Page 4 of 8, 03/29/2012, 01:32:16
Name:
Solution
Date:
Instructor:
Course:
th
Intermediate Accounting, 14 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 Garcias 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 Garcias 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
$70,000
86,000
112,000
140,000
$408,000
Aluminum shake siding
Cedar siding
Louvered glass doors
Thermal windows
Total
Replacement
Cost
$62,500
79,400
124,000
126,000
$391,900
Sales Price
$64,000
94,000
186,400
154,800
$499,200
Net
Realizable
Value
$56,000
84,800
168,300
140,000
$449,100
Normal Profit
$5,100
7,400
18,500
15,400
$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.
Aluminum siding
Cedar shake siding
Louvered glass doors
Thermal windows
Totals
Cost
$70,000
$86,000
$112,000
$140,000
$408,000
Replacement
Cost
$62,500
$79,400
$124,000
$126,000
$391,900
Inventory cost
LCM valuation
Allowance at May 31, 2012
NRV less
NRV
normal profit
(Ceiling)
(Floor)
$56,000
$50,900
$84,800
77,400
$168,300
149,800
$140,000
124,600
$449,100
$402,700
LCM
$56,000
$79,400
$112,000
$126,000
$373,400
$408,000
373,400
$34,600
(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.
For the fiscal year ended May 31, 2010, the loss that would be recorded due to the change in the Allowance to
Reduce Inventory to Market would be $7,100, as calculated below.
Balance prior to adjustment
Required balance
Loss to be recorded
$27,500
34,600
($7,100)
(b) Explain the rationale for the use of the lower of cost or market rule as it applies to inventories.
The use of the lower of cost or market (LCM) rule is based on both the matching principle and the concept of
conservatism. The matching principle applies because the application of the LCM rule allows for the recognition of
a decline in the utility (value) of inventory as a loss in the period in which the decline takes place.
The departure from the cost principle for inventory valuation is permitted on the basis of conservatism. The
general rule is that the historical cost principle is abandoned when the future utility of an asset is no longer as
great as its original cost.
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Problem 9-2 Solution , Page 5 of 8, 03/29/2012, 01:32:17
Name:
Date:
Instructor:
Course:
th
Intermediate Accounting, 14 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 Garcias 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 Garcias 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
$70,000
86,000
112,000
140,000
$408,000
Aluminum siding
Cedar shake siding
Louvered glass doors
Thermal windows
Total
Replacement
Cost
$62,500
79,400
124,000
126,000
$391,900
Sales Price
$64,000
94,000
186,400
154,800
$499,200
Net
Realizable
Value
$56,000
84,800
168,300
140,000
$449,100
Normal Profit
$5,100
7,400
18,500
15,400
$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.
Aluminum siding
Cedar shake siding
Louvered glass doors
Thermal windows
Totals
Cost
Amount
Amount
Amount
Amount
Formula
Replacement
Cost
Amount
Amount
Amount
Amount
Formula
Inventory cost
LCM valuation
Allowance at May 31, 2012
NRV less
NRV
normal profit
(Ceiling)
(Floor)
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Formula
Formula
LCM
Amount
Amount
Amount
Amount
Formula
Amount
Amount
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
Required balance
Loss to be recorded
Amount
Amount
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.
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Problem 9-2, Page 6 of 8, 03/29/2012, 01:32:17
Name:
Solution
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 Sharapovas 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:retail:
at
400
Sales
at retail:
95,000
Sales returns:
2,400
Instructions:
(a) Compute the inventory for this department as of January 31, at Retail
Beginning Inventory
Purchases
Freight-in
Purchase returns
Transfers in from suburban branch
Cost
$17,000
82,500
7,000
(2,300)
9,200
113,400
Retail
$25,000
137,000
(3,000)
13,000
172,000
8,000
180,000
(4,000)
Net markups
Net markdowns
Sales
Sales returns
Net sales
Inventory losses due to breakage
Ending inventory at retail
Cost-to-retail ratio =
($95,000)
2,400
(92,600)
(400)
$83,000
$113,400
$180,000
=
#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
$83,000
#VALUE!
#VALUE!
Note: Due to significant digits of worksheets and calculators, small differences may occur.
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Problem 9-6 Solution, Page 7 of 8, 03/29/2012, 01:32:18
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 Sharapovas 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:retail:
at
400
Sales
at retail:
95,000
Sales returns:
2,400
Instructions:
(a) Compute the inventory for this department as of January 31, at Retail
Beginning Inventory
Title
Title
Title
Transfers in from suburban branch
Cost
Amount
Amount
Amount
Amount
Amount
Formula
Retail
Amount
Amount
Amount
Amount
Formula
Amount
Formula
Amount
Net markups
Net markdowns
Title
Title
Title
Title
Ending inventory at retail
Cost-to-retail ratio =
Amount
Amount
Formula
Amount
Formula
Value
Value
=
Formula
(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.
c611c772084dcaae397db9d7b724bacc5536541c.xlsx, Problem 9-6, Page 8 of 8, 03/29/2012, 01:32:18