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Chapter 6: 9RQ (page 357)
What does the lower-of-cost-or-market (LCM) rule require?
The historical cost and market cost (or net realizable cost) are the two parameters that are required under the LCM approach.
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Question:Refer to Short Exercises S6-4 through S6-6. After completing those exercises, answer the following questions:
Requirements
1. Which inventory costing method produced the lowest cost of goods sold?
Question:Empire State Carpets鈥檚 books show the following data. In early 2020, auditors foundthat the ending merchandise inventory for 2017 was understated by \(8,000 and thatthe ending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
2019 | 2018 | 2017 | |
Net Sales Revenue | \( 220,000 | \) 162,000 | \( 176,000 |
Cost of Goods Sold: | |||
Beginning Merchandise Inventory | \)22,000 | \(29,000 | \)46,000 |
Net cost of purchase | 132,000 | 90,000 | 76,000 |
Cost of goods available for sale | 154,000 | 119,000 | 122,000 |
Less: Ending Merchandise Inventory | 32,000 | 22,000 | 29,000 |
Cost of goods sold | 122,000 | 97,000 | 93,000 |
Gross Profit | 98,000 | 65,000 | 83,000 |
Operating Expenses | 72,000 | 38,000 | 48,000 |
Net Income | \( 26,000 | \) 27,000 | $ 35,000 |
Requirements
2. State whether each year鈥檚 net income鈥攂efore your corrections鈥攊s understated oroverstated, and indicate the amount of the understatement or overstatement.
Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.
Preparing a perpetual inventory record and journal entries鈥� Weighted-average
Requirements
2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.
Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:
Jan. 5 Purchase 156 crates @ \) 64 each
13 Sale 180 crates @ \( 100 each
18 Purchase 114 crates @ \) 75 each
26 Sale 150 crates @ $ 116 each
Requirements
2. Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the company鈥檚 cost of goods sold, ending merchandise inventory, and gross profit.
Some of L and K Electronics鈥檚 merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business鈥檚 cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company鈥檚 Cost of Goods Sold account has a balanceof $410,000.
Requirements
4. Which accounting principle or concept is most relevant to this situation?
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