Chapter 9 Textbook Exercises Solutions.pdf - 3 The lower-of-cost-and-net realizable value rule may be applied directly to each item or to the total of

Chapter 9 Textbook Exercises Solutions.pdf - 3 The...

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3. The lower-of-cost-and-net realizable value rule may be applied directly to each item or to the total of the inventory (or in some cases, to the total of the components of each major category). The method should be the one that most clearly reflects income. The most common practice is to price the inventory on an item-by-item basis. Companies favor the individual item approach because tax requirements in some countries require that an individual item basis be used unless it involves practical difficulties. In addition, the individual item approach gives the most conservative valuation on the statement of financial position. BRIEF EXERCISE 9-1 Item Cost NRV LCNRV Skis $190.00 $161.00 $161.00 Boots 106.00 108.00 106.00 Parkas 53.00 50.00 50.00 BRIEF EXERCISE 9-2 (a) Item Cost NRV LCNRV Item-by-item Jokers $ 2,000 $ 2,100 $ 2,000 Penguins 5,000 4,950 4,950 Riddlers 4,400 4,625 4,400 Scarecrows 3,200 3,830 3,200 Total $14,600 $15,505 $14,550 (b) 1. Penguins only: $50 2. None on a whole group: $15,505 > $14,600.
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EXERCISE 9-4 December 31, 2017 (a) Cost of Goods Sold ($346,000 $322,000) .......... 24,000 Allowance to Reduce Inventory to NRV ...... 24,000
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