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Exam 9: Inventories: Additional Issues

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Question 41

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In applying the LCM rule, the inventory of apparel would be valued at:

A) $108,000.
B) $ 90,000.
C) $110,000.
D) $115,000.$90,000 designated market value is less than $108,000 cost.

E) All of the above
F) A) and B)

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Question 42

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New York Sales Inc. uses the conventional retail method to estimate its ending inventories. The following data has been summarized for December 31, 2009: Required: Compute the cost-to-retail percentage used by New York Sales Inc. $\begin{array} { l c r } & \text { Cost } &{ \text { Retail } } \\\text { Inventory, January 1 } & & \$ 160,000 \\\text { Purchases } & & 538,000 \\\text { Net markups } & & 12,000 \\\text { Net markdowns } & & 9,100 \\\text { Net sales } & & 582,000 \\\text { Inventory, Dec. 31 } & \$ 77,285 &\end{array}$

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Question 43

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For a change from the average cost method to FIFO, the current year's income includes the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years.

Coastal Shores Inc. (CSI) was completely destroyed by Hurricane Fred on August 5, 2009. At January 1, CSI reported an inventory of $170,000. Sales from January 1, 2009, to August 5, 2009, totaled $480,000 and purchases totaled $195,000 during that time. CSI consistently marks up its products 60% over cost to arrive at a selling price. The estimated inventory loss due to Hurricane Fred would be:

Included in the computation of the cost-to-retail percentage for the LIFO retail method are:

Littleton Company uses a periodic inventory system and the LIFO retail method to estimate its ending inventories. The following partial data has been summarized for December 31, 2009: Required: Determine the cost-to-retail percentage used by Littleton. Assume stable retail prices during the period.

For a purchase commitment extending beyond the current fiscal year, if the market price on the purchase date declines from the previous year-end price, the purchase is recorded at the market price.

Lacy's Linen Mart uses the retail method to estimate inventories. Data for the first six months of 2009 include: beginning inventory at cost and retail were $60,000 and $120,000, net purchases at cost and retail were $312,000 and $480,000, and sales during the first six months totaled $490,000. The estimated inventory at June 30, 2009, would be:

For a purchase commitment contained within a single fiscal year, if the market price is less than the contract price, the purchase is recorded at the contract price.

In calculating the cost-to-retail percentage for the retail method, the retail column will not include:

The denominator for the current period's cost-to-retail percentage is:

Estimated ending inventory at cost is:

In applying the LCM rule, the inventory of surgical supplies would be valued at:

Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of July was $122,500. The following information for the month of August was available from company records: In addition, the controller is aware of $10,000 of inventory that was stolen during August from one of the company's warehouses. Required: 1. Calculate the estimated inventory at the end of August, assuming a gross profit ratio of 30% 2. Calculate the estimated inventory at the end of August, assuming a markup on cost of 25%.

Briefly outline the steps in the gross profit method of estimating ending inventory and indicate when the method might be used.

To use the dollar-value LIFO retail method for inventory, the first step is to:

Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows: What should be the carrying value of Montana's inventory?

Purchase returns and purchase discounts are ignored when computing cost-to-retail ratios for the retail method.

Murdock Industries uses a periodic inventory system and the LIFO retail method to estimate its ending inventories. The following data has been summarized for December 31, 2009: Required: Estimate the LIFO cost of ending inventory. Assume stable retail prices during the period. $\begin{array} { l c r } & \text { Cost } & { \text { Retail } } \\\text { Inventory, January 1 } & \$ 116,000 & \$ 165,000 \\\text { Purchases } & 355,000 & 540,000 \\\text { Net markups } & & 15,600 \\\text { Net markdowns } & & 9,800 \\\text { Net sales } & & 522,000\end{array}$

Harley Inc. uses the conventional retail method to estimate its ending inventories. The following data has been summarized for December 31, 2009: Required: Estimate the cost of ending inventory applying the conventional retail method. $\begin{array} { l c r } & \text { Cost } & { \text { Retail } } \\\text { Inventory, January 1 } & \$ 208,000 & \$ 280,000 \\\text { Purchases } & 470,000 & 610,000 \\\text { Net markups } & & 15,300 \\\text { Net markdowns } & & 11,200 \\\text { Normal spoilage } & & 4,600 \\\text { Net sales } & & 489,500\end{array}$