Exam 9: Inventories: Additional Issues

When changing 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.

Howard's Supply Co. suffered a fire loss on April 20, 2018. The company's last physical inventory was taken January 30, 2018, at which time the inventory totaled $220,000. Sales from January 30 to April 20 were $600,000 and purchases during that time were $450,000. Howard's consistently reports a 30% gross profit. The estimated inventory loss is:

Weldon Animal Feeds has developed the following data to calculate lower of cost or market for its products. The individual products are listed individually among their categories of feed (in thousands): The disposal costs are 20% of the selling price and the normal profit margin on all feed is 25% of the selling price. -Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to individual animal feed products.

Connors Academy reported inventory in the 2017 year-end balance sheet, using the FIFO method, as $154,000. In 2018, the company decided to change its inventory method to LIFO. If the company had used the LIFO method in 2017, the company estimates that ending inventory would have been in the range $130,000-$135,000. What adjustment would Connors make for this change in inventory method?

Willie Nelson's Boots uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below: -To the nearest thousand, estimated ending inventory using the conventional retail method is:

When computing the cost-to-retail percentage for the average cost retail method, included in the denominator are:

For companies using FIFO or average cost, inventory is valued at:

Under the LIFO retail method, the denominator in the cost-to-retail percentage includes:

Under the dollar-value LIFO retail method, to determine the value of a LIFO layer:

Data related to the inventories of Alpine Ski Equipment and Supplies is presented below: -In applying the lower of cost or net realizable value rule, the inventory of supplies would be valued at:

The disposal costs are 20% of the selling price and the normal profit margin on all feed is 25% of the selling price. -Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to the total inventory.

Data related to the inventories of Mountain Ski Equipment and Supplies is presented below: - In applying the lower of cost or market rule, the inventory of skis would be valued at:

Coastal Shores Inc. (CSI) was destroyed by Hurricane Fred on August 5, 2018. At January 1, CSI reported an inventory of $170,000. Sales from January 1, 2018, to August 5, 2018, 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:

International Financial Reporting Standards allow the reversal of an inventory write-down.

Briefly explain the financial reporting required when material misstatements are found in previous years' financial statements that are included for comparative purposes in the current year's financial statements.

Novelli's Nursery has developed the following data for lower of cost or market for its products. The individual types of trees are separated as to their categories: The costs to sell are 10% of the selling price, and the normal profit margin on all trees is 20% of the selling price. -Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to categories of trees.

New York Sales Inc. uses the conventional retail method to estimate its ending inventories. The following data has been summarized for December 31, 2018: Required: Compute the cost-to-retail percentage used by New York Sales Inc.

In the year 2018, the internal auditors of Goofy Co. discovered that goods costing $25 million that were purchased in December of 2017 were recorded for $20 million. The goods were properly measured in the December 31, 2017, ending physical inventory. Required: Prepare the journal entry needed in 2018 to correct the error. Also, briefly describe any other measures Goofy would take in connection with correcting the error. (Ignore income taxes.)

Briefly explain how a material adjustment to inventory due to application of the lower of cost or net realizable value rule should be reported in the financial statements.

Under the dollar-value LIFO retail method, to determine if the increase in the value of inventory was due to an increase in quantities: