Practice problems ACC422-2 - 1(Lower-of-Cost-or-Market...

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1. (Lower-of-Cost-or-Market) Smashing Pumpkins Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2008, consists of products D, E, F, G, H, and I. Relevant per-unit data for these products appear below. Item D Item E Item F Item G Item H Item I Estimated selling price $120 $110 $95 $90 $110 $90 Cost 75 80 80 80 50 36 Replacement cost 120 72 70 30 70 30 Estimated selling expense 30 30 30 25 30 30 Normal profit 20 20 20 20 20 20 Instructions Using the lower-of-cost-or-market rule, determine the proper unit value for balance sheet reporting purposes at December 31, 2008, for each of the inventory items above. 2. (Gross Profit Method) Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Sales are made at 33?% above cost and totaled $100,000 to March 9. Goods costing $10,900 were left undamaged by the fire; remaining goods were destroyed.
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