Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 10.14BE
Lower of Cost or Market. Count Clothing Company manufactures two types of raincoats—Regular and Stan Resistant Information related to both products is presented in the following table
| Group | Current Replacement Cost | Selling Price | Disposal Costs | Normal Profit Margin | Cost |
| Regular | $120 | $190 | $20 | $70 | $118 |
| Stain Resistant | 230 | 250 | 26 | 45 | 240 |
Determine the ending inventory value per unit and the amount of any write-downs per unit using the lower-of-cost-or-market rule assuming that Count Clothing uses the LIFO costing method and the group-by-group approach to LCM.
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Huddell Company, which is both a wholesaler and retailer, purchases merchandise from various suppliers. Thedollar-value LIFO method is used for the wholesale inventories.Huddell determines the estimated cost of its retail ending inventories using the conventional retail inventorymethod, which approximates lower of average cost or market.Required:1. a. What are the advantages of using the dollar-value LIFO method as opposed to the traditional LIFOmethod?b. How does the application of the dollar-value LIFO method differ from the application of the traditionalLIFO method?2. a. In the calculation of the cost-to-retail percentage used to determine the estimated cost of its ending inventories, how should Huddell use∙ Net markups?∙ Net markdowns?b. Why does Huddell’s retail inventory method approximate lower of average cost or market?
Presented below is information related to Sheffield Inc's inventory, assuming Sheffield uses lower-of-LIFO cost-or-market.
Historical cost
Selling price
Cost to distribute
Current replacement cost
Normal profit margin
(per unit)
Floor
$
Skis
$254.60
$
$
284.08
25.46
272.02
42.88
Boots
$142.04
194.30
10.72
140.70
Parkas
$71.02
98.83
Determine the following:
(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for
skis. (Round answers to 2 decimal places, e.g. 52.75.)
Ceiling $
3.35
68.34
38.86 28.48
(b) The cost amount that should be used in the lower-of-cost-or-market comparison of boots. (Round answer to 2 decimal places, e.g.
52.75.)
(c) The market amount that should be used to value parkas on the basis of the lower-of-cost-or-market. (Round answer to 2 decimal
places, e.g. 52.75.)
Ehlo Company is a multiproduct firm. Presented below is information
concerning one of its products, the Hawkeye.
Date Transaction Quantity Price/Cost
1/1 Beginning inventory 5,300
$25
2/4 Purchase
5,100
27
7,250
5,250
4,100
8,200
2/20 Sale
4/2 Purchase
7/17 Purchase
11/4 Sale
28
30
Compute cost of goods sold, assuming Ehlo uses:
(a) Periodic system, FIFO cost flow
(b) Perpetual system, FIFO cost flow
(c) Periodic system, LIFO cost flow
(d) Perpetual system, LIFO cost flow
(e) Periodic system, weighted-average cost flow
(f) Perpetual system, moving-average cost flow
Cost of goods sold
tA
LA
ta
LA LA
A
Chapter 10 Solutions
Intermediate Accounting
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