OTHERChap4 Homework Assignment

# OTHERChap4 Homework Assignment - Chapter 4 Homework...

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Chapter 4 Homework Assignment: Exercise 1 on page 154 Inventory of Product Z at Monroe Company Information for inventory of Product Z on hand on December 31, Year 1 Historical cost \$20,000 Replacement cost \$14,000 Estimated selling price \$17,000 Estimated costs to complete and sell \$ 2,000 Normal profit margin as % of selling price 20% The entire inventory was sold at a price of \$17,150 and the selling cost was \$1,800. a) Determine the impact of the accounting for inventories on Year 1 and Year 2 income related to Product Z Calculation: The Net realizable value of product Z = estimated selling price - estimated costs to complete and sell = \$17,000 - \$2,000 = \$15,000 Normal profit margin = 20% X Net realizable value = 20% X \$15,000 = \$3,000 Net realizable value less Normal profit margin: \$15,000 - \$3,000 = \$12,000 Net selling price = Selling price – selling cost = \$17,150 - \$1,800 = \$15,350 (1) Under IFRS Year 1 Net realizable value (\$15,000) is lower than historical cost (\$20,000). So inventory must be written down by \$5,000 (\$20,000 - \$15,000) and the following journal entry: (Debit) Inventory Loss \$5,000 (Credit) Inventory \$5,000 Year 2 Difference to put back as income is Net selling price - Net realizable value = \$15,350 - \$15,000 = \$350 and the following journal entry: (Debit) Inventory \$350 (Credit) Recovery of Inventory loss (increase income)

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## This note was uploaded on 10/07/2011 for the course ACCOUNTING 4220 taught by Professor Brown during the Spring '11 term at UMBC.

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OTHERChap4 Homework Assignment - Chapter 4 Homework...

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