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Chapter 9: Q11Q (page 474)
Question:What are the major uses of the gross profit method?
The major uses of the gross profit method are as follows:
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Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was \(38,000. Purchases since January 1 were \)72,000; freight-in, \(3,400; purchase returns and allowances, \)2,400. Sales are made at 331 /3% above cost and totaled \(100,000 to March 9. Goods costing \)10,900 were left undamaged by the fire; remaining goods were destroyed. Instructions (a) Compute the cost of goods destroyed. (b) Compute the cost of goods destroyed, assuming that the gross profit is 331 /3% of sales.
Bell, Inc. buys 1,000 computer game CDs from a distributor who is discontinuing those games. The purchase price for the lot is \(8,000. Bell will group the CDs into three price categories for resale, as indicated below. Group No. of CDs Price per CD 1 100 \) 5 2 800 10 3 100 15 Determine the cost per CD for each group, using the relative sales value method
Presented below is information related to Rembrandt Inc.鈥檚 inventory, assuming Rembrandt uses lower-of-LIFO cost-or-market. (per unit) Skis Boots Parkas Historical cost \(190.00 \)106.00 $53.00 Selling price 212.00 145.00 73.75 Cost to distribute 19.00 8.00 2.50 Current replacement cost 203.00 105.00 51.00 Normal profit margin 32.00 29.00 21.25 Determine the following: (a) the two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of cost-or-market computation for skis, (b) the cost amount that should be used in the lower-of-cost-or-market comparison of boots, and (c) the market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.
The inventory of Oheto Company on December 31, 2017, consists of the following items. Part Quantity Cost per Unit Net Realizable Value 110 600 \( 95 \)100 111 1,000 60 52 112 500 80 76 113 200 170 180 120 400 205 208 121a 1,600 16 1 122 300 240 235 a Part No. 121 is obsolete and has a realizable value of $1 each as scrap. Instructions 1. Determine the inventory as of December 31, 2017, by the LCNRV method, applying this method to each item. 2. Determine the inventory by the LCNRV method, applying the method to the total of the inventory.
(LCNRV鈥擡rror Effect) LaGreca Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2017, included product X. Relevant per-unit data for product X are as follows. Estimated selling price \(50 Cost 40 Estimated selling costs 14 Normal profi t 9 There were 1,000 units of product X on hand at December 31, 2017. Product X was incorrectly valued at \)38 per unit for reporting purposes. All 1,000 units were sold in 2018. Instructions Compute the effect of this error on net income for 2017 and the effect on net income for 2018, and indicate the direction of the misstatement for each year.
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