Transcript Slide 1

E8-24
The dollar-value LIFO method was adopted by Enya Corp.
on January 1, 2014. Its inventory on that date was
$160,000. On December 31, 2014, the inventory at prices
existing on that date amounted to $140,000. The price level
at January 1, 2014, was 100, and the price level at
December 31, 2014, was 112.
a. Compute the amount of the inventory at December 31,
2014, under the dollar-value LIFO method.
b. On December 31, 2015, the inventory at prices existing
on that date was $172,500, and the price level was
115. Compute the inventory on that date under the
dollar-value LIFO method.
E8-24 a.
E8-24 b.
LCM Practice
Decker Company has five products in its inventory. Information about
the December 31, 2011, inventory follows.
Unit
Unit
Unit
Replacement Selling
Product Quantity
Cost
Cost
Price
A
1,000
$10
$12
$16
B
800
15
11
18
C
600
3
2
8
D
200
7
4
6
E
600
14
12
13
The selling cost for each product consists of a 15 percent sales
commission. The normal profit percentage for each product is 40
percent of the selling price.
Determine the balance sheet inventory carrying value at December 31,
2011, assuming the LCM rule is applied to individual products.
LCM Practice
Product
A
NRV per unit
$16 - (15% x $16) = $13.60
(1)
(2)
Ceiling
Product
(units)
RC
NRV
A (1,000)
$12,000
$13,600
(3)
Floor
NRV-NP per unit
$13.60 - (40% x $16) = $7.20
(4)
Designated
Market Value
[Middle value
NRV-NP of (1), (2) & (3)]
$7,200
$12,000
(5)
Cost
$10,000
Inventory
Value
[Lower of (4)
and (5)]
$10,000
LCM Practice
Decker Company has five products in its inventory. Information about
the December 31, 2011, inventory follows.
Unit
Unit
Unit
Replacement Selling
Product Quantity
Cost
Cost
Price
A
1,000
$10
$12
$16
B
800
15
11
18
C
600
3
2
8
D
200
7
4
6
E
600
14
12
13
The selling cost for each product consists of a 15 percent sales
commission. The normal profit percentage for each product is 40
percent of the selling price.
Determine the balance sheet inventory carrying value at December 31,
2011, assuming the LCM rule is applied to the entire inventory.
LCM Practice
Inventory carrying value would be $30,390, the lower of
aggregate inventory cost ($33,600) and aggregate
inventory market ($30,390). The amount of the loss from
inventory write-down is $3,210 ($33,600 – 30,390).
Practice: Conventional Retail Method
Smith-Kline Company maintains inventory records at selling
prices as well as at cost. For 2011, the records indicate the
following data:
Cost Retail
Beginning inventory
$ 80 $ 125
Purchases
671
1,006
Freight-in on purchases
30
Purchase returns
1
2
Net markups
4
Net markdowns
8
Net sales
916
Use the conventional retail method to approximate cost of
ending inventory.
Practice: (Conventional Retail)
Cost Retail
$ 80 $ 125
671
1,006
30
(1)
(2)
4
780
1,133
Beginning inventory
Purchases
Freight-in on purchases
Purchase returns
Net markups
Goods available for sale
Cost-to-retail percentages:
Conventional cost ratio: $780 / $1,133 = 0.6884
Deduct: Net sales
Net markdowns
Ending inventory at retail
Ending inv at cost ($209 x .6884)
$144
(916)
(8)
$ 209
LIFO to FIFO Conversion – Dow Chemical
LIFO
6,847
FIFO
46,020
52,867
7,087
45,780
E10-25
On April 1, 2012, Pavlova Company received a
condemnation award of $410,000 cash as compensation
for the forced sale of the company’s land and building,
which stood in the path of a new state highway. The land
and building cost $60,000 and $280,000, respectively,
when they were acquired. At April 1, 2012, the
accumulated depreciation relating to the building amounted
to $160,000. On August 1, 2012, Pavlova purchased a
piece of replacement property for cash. The new land cost
$90,000, and the new building cost $380,000. Prepare the
journal entries to record the transactions on April 1 and
August 1, 2012.
E10-25: Continued
April 1
Cash
410,000
Accumulated Depreciation—Buildings 160,000
Land
60,000
Buildings
280,000
Gain on Disposal of Plant Assets
230,000
August 1
Land
Buildings
Cash
90,000
380,000
470,000
Example 9
On January 1, 2011, the Haskins Company adopted the
dollar-value LIFO method for its one inventory pool. The
pool’s value on this date was $660,000. The 2011 and
2012 ending inventory valued at year-end costs were
$690,000 and $760,000, respectively. The appropriate cost
indexes are 1.04 for 2011 and 1.08 for 2012.
Calculate the inventory value at the end of 2011 and 2012
using the dollar-value LIFO method.
Example 9: Continued
2011
Ending Inventory at Base Year Cost
Inventory Layers at Base Year Cost
Inventory Layers Converted to Cost
Example 9
On January 1, 2011, the Haskins Company adopted the
dollar-value LIFO method for its one inventory pool. The
pool’s value on this date was $660,000. The 2011 and
2012 ending inventory valued at year-end costs were
$690,000 and $760,000, respectively. The appropriate cost
indexes are 1.04 for 2011 and 1.08 for 2012.
Calculate the inventory value at the end of 2011 and 2012
using the dollar-value LIFO method.
Example 9: Continued
2012
Ending Inventory at Base Year Cost
Inventory Layers at Base Year Cost
Inventory Layers Converted to Cost
Example 10
Mercury Company has only one inventory pool. On
December 31, 2011, Mercury adopted the dollar-value
LIFO inventory method. The inventory on that date using
the dollar-value LIFO method was $200,000. Inventory data
are as follows:
Year
2012
2013
2014
Ending Inventory at
Year-End Costs
$231,000
299,000
300,000
Ending Inventory at
Base Year Costs
$220,000
260,000
250,000
Compute the inventory at December 31, 2012, 2013, and
2014, using the dollar-value LIFO method.
Example 10: Continued
2012
Calculation of Cost Index
Inventory Layers Converted to Cost
Example 10: Continued
2013
Calculation of Cost Index
Inventory Layers Converted to Cost
Example 10
Mercury Company has only one inventory pool. On
December 31, 2011, Mercury adopted the dollar-value
LIFO inventory method. The inventory on that date using
the dollar-value LIFO method was $200,000. Inventory data
are as follows:
Year
2012
2013
2014
Ending Inventory at
Year-End Costs
$231,000
299,000
300,000
Ending Inventory at
Base Year Costs
$220,000
260,000
250,000
Compute the inventory at December 31, 2012, 2013, and
2014, using the dollar-value LIFO method.
Example 10: Continued
2014
Calculation of Cost Index
Inventory Layers Converted to Cost
E9-12
Astaire Company uses the gross profit method to estimate inventory for
monthly reporting purposes. Presented below is information for the
month of May.
Inventory, May 1
$ 160,000
Purchases (gross)
640,000
Freight-in
30,000
Sales
1,000,000
Sales returns
70,000
Purchase discounts
12,000
a) Compute the estimated inventory at May 31, assuming that the
gross profit is 25% of sales.
b) Compute the estimated inventory at May 31, assuming that the
gross profit is 25% of cost.
E9-12(a)
Inventory, May 1
$ 160,000
Purchases (gross)
640,000
Freight-in
30,000
Sales
1,000,000
Sales returns
70,000
Purchase discounts
12,000
a) Compute the estimated inventory at May 31, assuming that the
gross profit is 25% of sales.
E9-12(b)
b) Compute the estimated inventory at May 31, assuming that the
gross profit is 25% of cost.
Not the easiest to use since we don’t know cost!
GP = COGS * 25% and Sales – COGS = GP
GP = (Sales – GP) * 25%
GP = Sales * 25% – GP *25%
GP + GP * 25% = Sales * 25%
GP * 125% = Sales * 25%
GP = Sales * 25% / 125%
GP = Sales * 20%
E9-12(b)
Inventory, May 1
$ 160,000
Purchases (gross)
640,000
Freight-in
30,000
Sales
1,000,000
Sales returns
70,000
Purchase discounts
12,000
b) Compute the estimated inventory at May 31, assuming that the
gross profit is 25% of cost (i.e., 20% of sales).
E9-24(a)
You assemble the following information for Dillon Department Store,
which computes its inventory under the dollar-value LIFO method.
Cost
Retail
Inventory on January 1, 2012
$222,000 $300,000
Purchases
364,800
480,000
Increase in price level for year
9%
Compute the cost of the inventory on December 31, 2012, assuming
that the inventory at retail is $294,300.
E9-24(b)
You assemble the following information for Dillon Department Store,
which computes its inventory under the dollar-value LIFO method.
Cost
Retail
Inventory on January 1, 2012
$222,000 $300,000
Purchases
364,800
480,000
Increase in price level for year
9%
Compute the cost of the inventory on December 31, 2012, assuming
that the inventory at retail is $359,700.