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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.

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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.
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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.
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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.

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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?

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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?

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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)]