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Exam 9: Inventories: Additional Issues

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Question 51

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Andover Stores uses the average cost retail method to estimate its ending inventory. Information as of June 30, 2009, is as follows: Required: Use the retail method to estimate the June 30, 2009, inventory. $\begin{array}{lrr}&\text { Cost } & \text { Retail }\\\text { Beginning inventory } & \$ 45,000 & \$ 82,000 \\\text { Net purchases } & 245,000 & 418,000 \\\text { Net sales } & & 400,000\end{array}$

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Question 52

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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.

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Material errors in prior years require p...

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Question 53

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In determining lower-of-cost-or-market, market is the expected selling price under normal operations.

In the following questions, inventory errors are noted for 2009. Assume that the errors are not discovered until 2010, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = understated; O = Overstated; NE = No effect - $\begin{array} { | l | l | l | } \hline { \text { Error } } & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \text { Unrecorded purchases } & & \\\hline\end{array}$

Required: Determine the balance sheet inventory carrying value assuming the LCM rule is applied to the total inventory.

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: Required: Estimate the cost of ending inventory for December 31, 2009.

So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2009. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2009, $300,000; sales and purchases from January 1, 2009, to May 1, 2009, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2009, is:

At what amount will Johnson record the inventory purchased on February 1, 2010?

The conventional cost-to-retail percentage is:

Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the following year. As a result, Prunedale's cost of goods sold for this year was:

The estimated ending inventory at retail is:

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

To the nearest thousand, the estimated ending inventory at cost is:

In the following questions, inventory errors are noted for 2009. Assume that the errors are not discovered until 2010, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = understated; O = Overstated; NE = No effect - $\begin{array} { | l | l | l | } \hline { \text { Error } } & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \begin{array} { l } \text { Recorded purchases for } \$ 523,000 \text { that } \\\text { should have been } \$ 532,000 .\end{array} & & \\\hline\end{array}$

In the following questions, inventory errors are noted for 2009. Assume that the errors are not discovered until 2010, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = understated; O = Overstated; NE = No effect - $\begin{array} { | c | c | c | } \hline \text { Error } & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \text { Double counted items in ending inventory } & & \\\hline\end{array}$

Net realizable value is selling price less costs of completion and disposal.

Retrospective treatment of prior years' financial statements is required when there is a change from:

In determining the cost-to-retail percentage for the current year,:

Cindy Lou Linens uses the conventional retail method to estimate its ending inventories. The company records sales net of employee discounts. The following partial data has been summarized for the year ended December 31, 2009: Required: Compute the net markups for Cindy Lou Linens during 2009. $\begin{array} { l c r } & \text { Cost } & { \text { Retail } } \\\text { Inventory, January 1 } & \$ 465,460 & \$ 736,000 \\\text { Purchases } & 1,412,000 & 2,344,000 \\\text { Net markups } & & ? ? ? \\\text { Net markdowns } & & 48,200 \\\text { Normal spoilage } & & 43,200 \\\text { Employee discounts } & & 75,600 \\\text { Net sales } & & 2,138,000 \\\text { Inventory, Dec. 31 } & 494,460 & 824,100\end{array}$

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, 2009.