Thursday, 7 May 2015

Smith Distributors, Inc., supplies ice cream shops with various toppings for making sundaes. On November 17, 2013, a fire resulted in the loss of all of the toppings stored in one section of the warehouse. The company must provide its insurance company with an estimate of the amount of inventory lost. The following information is available from the company's accounting records:

Smith Distributors, Inc., supplies ice cream shops with various toppings for making sundaes. On November 17, 2013, a fire resulted in the loss of all of the toppings stored in one section of the warehouse. The company must provide its insurance company with an estimate of the amount of inventory lost. The following information is available from the company's accounting records:

 Fruit Toppings Marshmallow Toppings Chocolate Toppings Inventory, January 1, 2013 \$ 10,000 \$ 6,000 \$ 2,000 Net purchases through Nov. 17 100,000 26,000 11,000 Net sales through Nov. 17 150,000 45,000 19,000 Historical gross profit ratio 35 % 40 % 40 %

 Required: 1. Calculate the estimated cost of each of the toppings lost in the fire.

Campbell Corporation uses the retail method to value its inventory. The following information is available for the year 2013:

Campbell Corporation uses the retail method to value its inventory. The following information is available for the year 2013:

 Cost Retail Merchandise inventory, January 1, 2013 \$ 190,000 \$ 280,000 Purchases 600,000 840,000 Freight-in 8,000 Net markups 20,000 Net markdowns 4,000 Net sales 800,000

Required:
Determine the December 31, 2013, inventory that approximates average cost, lower of cost or market.

Explanation:

San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of October 2013:

San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of October 2013:

 Cost Retail Beginning inventory \$ 35,000 \$ 50,000 Net purchases 19,120 31,600 Net markups 1,200 Net markdowns 800 Net sales 32,000

Required:
Calculate the table to estimate the average cost of ending inventory and cost of goods sold for October. Do not approximate LCM.

Explanation:
 Cost-to-retail percentage \$54120 66% \$82,000

Estimated ending inventory at cost = 66% × \$50,000 = \$33,000

Royal Gorge 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 October was \$58,500. The following information for the month of November was available from company records:

Royal Gorge 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 October was \$58,500. The following information for the month of November was available from company records:

 Purchases \$ 110,000 Freight-in 3,000 Sales 180,000 Sales returns 5,000 Purchases returns 4,000

In addition, the controller is aware of \$8,000 of inventory that was stolen during November from one of the company's warehouses.

Explanation:
1.
 Net purchases (\$110,000 – 4,000) = \$106,000 Net sales (\$180,000 – 5,000) = \$175,000 Estimated gross profit of 40% = \$70,000

2.
 Gross profit as a % of cost ÷ (1 + Gross profit as a % of cost) = Gross profit as a % of sales. 100% ÷ 200% = 50%

 Net purchases (\$110,000 – 4,000) = \$106,000 Net sales (\$180,000 – 5,000) = \$175,000 Estimated gross profit of 50% = \$87,500

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

 Product 1 Product 2 Product 3 Cost \$ 20 \$ 90 \$ 50 Replacement cost 18 85 40 Selling price 40 120 70 Disposal costs 6 40 10 Normal profit margin 5 30 12

Required:
What unit values should Herman use for each of its products when applying the LCM rule to ending inventory assuming it prepares financial statements according to International Financial Reporting Standards?

Explanation:

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

 Product 1 Product 2 Product 3 Cost \$ 20 \$ 90 \$ 50 Replacement cost 18 85 40 Selling price 40 120 70 Disposal costs 6 40 10 Normal profit margin 5 30 12

Required:
What unit values should Herman use for each of its products when applying the LCM rule to ending inventory?

Explanation:
 NRV = Selling price less disposal costs. NRV − NP = NRV less normal profit margin. Designated Market Value = [Middle value of (RC), (NRV) & (NRV − NP)] Per Unit Inventory Value = [Lower of (Designated Market Value) and (Cost)]