Beginning inventory $170,000 Sales Lumber 25% Millwork 3}o/o

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@ just
(Gross Profit Method) Castlevania Company lost most of its inventory in a fire in December
before the year-end physical inventory was taken. The corporation's books disclosed the foiiowing.
Beginning inventory
Puichases for the year
Purchase
returns
$650,000
$170,000 Sales
24,AOO
450,000 Sales returns
30,000 Rate of gross margin on net sales 30%
Merchandise r.t'ith a selling price of $21,000 remained undamaged after the fire. Damaged merchandise
with an original selling price of $15,000 had a net realizable vaiue of $5,300.
lnstructions
Cornpute the amount of the ioss as a result of the fire, assuming that the corporation had no insurance
coverage.
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(Gross Profit Methodl You are called by Yao Ming of Rocket Co. on July 16 and asked to prepare a clairn for insurance as a result of a theft that took place the night before. You suggest that an inventory be taken immediately. The {ollowing data are available (000 omitted).
Inventory, July
1
Purchases-goods placed in stock July 1-15
Sales-goods delivered to customers (gross)
Sales returns-goods returned to stock
Y 38,000
90,000
116,000
4,000
Your client reports that the goods on hand on Jr-rly 16 cost Y30,500, but you determine that this figure includes goods of Y6,000 received on a consignment basis. Your past records show that sales are made at
approximately 25% over cost. Rocket's insurance covers only goods o'r,r'ned.
lnstructions
Compute the claim against the insurance company.
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(Gross Profit
Method) Sliver Lumber Company
hanclles three principal lines of merchandise
r,r'ith these varying rates of gross profit on cost.
Lumber
Millwork
Hardware
25%
3}o/o
Ajo/o
On August 18, a fire destroyed the of{ice, lumber shed, and a considerable portion of the lumber stacked
in the yard. To file a report of loss for insurance purposes, the company must know what the inventories
were irnmediately preceding the fire. No detail or perpetual inventory records of any kind r.vere maintained. The only pertinent information you are able to obtain are the follol,"ing facts from the general
ledger, n'irich was kept in a fireproof vault and thus escaped destruction.
1,zot1 Jffi
#ffi ffi
,500,000 375,000
Inventory,Jan.
Purchases to Aug. 18, 201 1
Sales to Aug. 18, 20'11
160,000
1
2,050,000 533,000
245,404
lnstruetions
Submit your estimate of the inventory all1ounts imrnediately preceding the fire.
S Ue-ff
(Gross Profit
Method)
Presented below is information relatecl to Jerrold Corporation for the cur-
rent year.
g
inventory
Purchases
600,000
1,500,000
Beginning
Total goods available for
Sales
sale
t2,100,000
2,300,000
lnstruetions
Compute the ending inventory, assuming that (a) gross profit is 4A% of sales; &) gross profit is
cosU (c) gross profit rs 35% of sales; and (d) gross profit is 25Vo of cost.
6A0/o
of
"El ng-zf (Retail Inventory Method)
Presented below is information related to Kuchinsky Company.
-
Beginning
Cost
€ 200,000 €
inventory
Purchases
Markups
1
,425,400
Markup cancellations
Markdowns
Markdown cancellations
Sales
Retail
280,000
2,140,000
95,000
15,000
35,000
5,000
2,250,000
lnstructions
Compute the inventory by the conventional retail inventory method.
fi
BV-ZZ (Retail Inventory
rnonth of April.
Method)
The records of Mandy's Boutique report the following data for the
$95,000
Sales
2,000
Sales returns
10,000
Markups
1,500
Markup cancellations
9,300
Markdowns
Markdown cancellations 2,800
2,404
Freight on Purchases
Purchases (at
cost)
price)
cost)
price)
cost)
price)
Purchases (at sales
Purchase returns (at
Purchase returns (at sales
Beginning inventory (at
Beginning inventory (at sales
$55,000
88,000
2,000
3,000
30,000
46,500
lnstructions
Compute the ending inventory by the conventional retail inventory method.
fl
EO-ZS {Analysis of Inventories) The financial statements of .A$trnBev's (BEL) 2008 annual report disclosed the following information.
(in
millions)
lnventories
31 December
€2,086
2008
31 December
20A7
31 December 2006
el,llY
€1 ,017
Fiscal Year
2008
Sales
Cost of sales
Net income (Profit)
€16,102
7,122
2,099
2007
€14,430
5,936
3,048
lnstructions
Compute ABInBev's (a) inventory turnover and (b) the a\rerage days to sell inventory for 2008 and 2007.
j,gl P9-1 (LCNRV)
Remmers Company manufactures desks. Most of the company's desks are standard
models and are sold on the basis of catalog prices. At December 31, 2A70, the follort'ing finishecl desks
appear in the company's inventorl'.
Finished Desks
$+so
47A
50
500
2010 catalog selling price
FIFO cost per inventory list 12/gnA
Estimated cost to complete and sell
2011 catalog selling price
$480
450
110
540
$900
830
260
900
$1,050
960
200
1,200
The 2010 cataiog was in effect through November 2010 and the 2011 cataiog is effective as of December 1,
2010. All catalog'prices are net of the usual discounts.
Instructions
At what amount should each of
tl're four desks appear in tire company's December 31, 20L0, inventory,
assuming that the company has adopted a lower-of-FlFO-cost-or-net realizable value approach for valuation of inventories on an individual-item basis?
9$ Pg-Z (LCNRV) Garcia Home hnprovement Company installs replacement siding, windorvs, and louvered
glass doors for singie family homes and condominium complexes in northern Ne\,v Jersey and southern
Jt
I New York. The company is in the process of preparing its annuai financial statements for the fiscal year
f endecl May 31, 2A70, and Jim Alcide, controller for Garcia, has gatl'rered the following data concerning
|Fl inventofy.
At May g1, 2A10, the balance in Garcia's Raw Material Inventory account was $408,000, and the
t
Allowance
to Reduce Inr.entory to NRV had a credit balance of $27,50A. Alcide summarized the relevant
I
PW inventory cost and market data at May 31, 2A70, in the schedule belonr
Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount
that shouid appear on Garcia's May 31,2010, financial statements for inventory under the LCNRV rule as
applied to each item in inrrentory. Devereaux expressed concern over departing from the cost principle.
Cost
Aluminum siding
Cedar shake siding
Louvered glass doors
Thermal windows
Total
Sales Price
Net Realizable Value
$
$
$
$408,000
:$499,200
914eJlg
70,000
86,000
112,000
140,000
64,000
94,000
186,400
154,800
56,000
84,800
168,300
140,000
Instructions
(a) (1)
(b)
Determine the proper balance in the Allowance to Reduce Inventory to Net Realizable Value
at May 37,20L0.
(2) For thl fiscal year ended May 37,2010, determine the amount of the gain or loss that would
be recorded (using the loss method) due to tire change in the Allowance to Reduce Inventory
to Net Realizable Value.
Explain the rationale for the use of the LCNRV ruie as it applies to inventories.