Exam 9: Inventories: Additional Issues

Briefly explain what is meant by "market" in the lower of cost or market (LCM) approach to valuing inventory at the end of a reporting period.

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 the total inventory.

Using the dollar-value LIFO retail method for inventory:

Losses on reduction to NRV may be charged to either cost of goods sold or to a line item among operating expenses.

Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows: Selling price \ 620,000 Costs to sell 30,000 Cost 520,000 $\text { What should be the reported value of Montarua's irventory? }$

Orlando Company has used the average cost method for inventory valuation since it began business in 2014, but has elected to change to the FIFO method starting in 2017. Year-end inventory valuations under each method are shown below: Average Year Cost FIFO 2014 \ 42,000 \ 47,000 2015 53,000 61,000 2016 59,000 68,000 2017 62,000 72,000 Required: How would Orlando reflect the change in accounting principle in its financial statements (ignore income taxes)?

Charleston Company has elected to use the dollar-value LIFO retail method to value its inventory. The following data has been accumulated from the accounting records: Required: Estimate the ending inventory for December 31, 2018.

Under the conventional retail method, which of the following are not included in the denominator of the current period cost-to-retail conversion percentage?

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%.

Green Acres Co. has elected to use the dollar-value LIFO retail method to value its inventory. The following data has been accumulated from the accounting records: Pertinent retail price indexes: Estimate the cost of ending inventory for December 31, 2018.

Data related to the inventories of Kimzey Medical Supply are presented below: - In applying the lower of cost or market rule, the inventory of surgical supplies would be valued at:

Harlequin Co. adopted the dollar-value LIFO retail method at the beginning of 2018 (its base year). Its beginning inventory for 2018 was $36,000 at cost and $72,000 at retail prices. At the end of 2018, it computed its estimated ending inventory at retail to be $110,000. Assuming its cost-to-retail percentage for 2018 transactions was 60%, and that the retail price index at the end of 2018 was 1.10, what is the inventory balance that Harlequin Co. would report in its 12/31/2018 balance sheet?

Benny's Bed Co. uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of September 2018. - The average cost-to-retail percentage (rounded) is:

The second step, when using dollar-value LIFO retail method for inventory, is to determine the estimated:

Benny's Bed Co. uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of September 2018. -To the nearest thousand, estimated ending inventory is:

An argument against use of the lower of cost or net realizable value rule is its lack of:

Data related to the inventories of Costco Medical Supply are presented below: Surgical Surgical Rehab Rehab Equiprnent Supplies Equipment Supplies Selling price \ 260 \ 100 \ 340 \ 165 Cost 170 90 250 162 Costs to sell 30 15 25 10 - In applying the lower of cost or net realizable value rule, the inventory of rehab equipment would be valued at:

Weldon Animal Feeds has developed the following data in order to calculate the lower of cost or net realizable value for its products (in thousands). The products are listed within their category of feed product. The costs to sell are 20% of selling price. -Required: Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to the total inventory.

The primary motivation behind the lower of cost or net realizable value rule is consistency.

Nidal Company reported inventory in the 2017 year-end balance sheet, using the FIFO method, as $185,000. In 2018, the company decided to change its inventory method to average cost. If the company had used the average cost method in 2017, ending inventory would have been $171,000. What adjustment would Nidal make for this change in inventory method?