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Chapter 9: Q8IFRS (page 500)

Keyser鈥檚 Fleece Inc. holds a drove of sheep. Keyser shears the sheep on a semiannual basis and then sells the harvested wool into the specialty knitting market. Keyser has the following information related to the shearing sheep at January 1, 2017, and during the first six months of 2017. Shearing Sheep Carrying value (equal to net realizable value), January 1, 2017 $74,000 Change in fair value due to growth and price changes 4,700 Change in fair value due to harvest (575) Wool harvested during the fi rst 6 months (at NRV) 9,000 Prepare the journal entry(ies) for Keyser鈥檚 biological asset (shearing sheep) for the first six months of 2017

Short Answer

Expert verified

In the journal entry, Biological Asset鈥擲hearing Sheep will be debited and Unrealized Holding Gain or Loss鈥擨ncome will be credited by $4,125, respectively.

Step by step solution

01

Journal entry for biological asset

Journal entries are as follows:

Date

Description

Debit

Credit

Biological Asset鈥擲hearing Sheep

$4,125

Unrealized Holding Gain or Loss鈥擨ncome

$4,125

(To record unrealized holding gain on biological asset)

02

Calculation of Unrealized Holding Gain or Loss—Income

Unrealized Holding Gain or Loss鈥擨ncome is calculated as follows:

UnrealizedHoldingGainorLoss-Income=ChangeinFairValueduetoGrowthandPriceChanges-ChangeinFairValueDuetoHarvest=$4,700+$575=$4,125

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Most popular questions from this chapter

Corrs Company began operations in 2016 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2016, and December 31, 2017. This information is presented below. Cost Lower-of-Cost-or-Market 12/31/16 \(356,000 \)327,000 12/31/17 420,000 395,000 Instructions (a) Prepare the journal entries required at December 31, 2016, and December 31, 2017, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used. (b) Prepare journal entries required at December 31, 2016, and December 31, 2017, assuming that the inventory is recorded at market under a perpetual system (loss method is used). (c) Which of the two methods above provides the higher net income in each year?

Olson Corporation, a retailer and wholesaler of national brand-name household lighting fixtures, purchases its inventories from various suppliers. Instructions (a) (1) What criteria should be used to determine which of Olson鈥檚 costs are inventoriable ? (2) Are Olson鈥檚 administrative costs inventoriable ? Defend your answer. (b) (1) Olson uses the lower-of-cost-or-market rule for its wholesale inventories. What are the theoretical arguments for that rule? (2) The replacement cost of the inventories is below the net realizable value less a normal profit margin, which, in turn, is below the original cost. What amount should be used to value the inventories? Why? (c) Olson calculates the estimated cost of its ending inventories held for sale at retail using the conventional retail inventory method. How would Olson treat the beginning inventories and net markdowns in calculating the cost ratio used to determine its ending inventories? Why.

Presented below is information related to Waveland Inc. Cost Retail Inventory, 12/31/17 \(250,000 \) 390,000 Purchases 914,500 1,460,000 Purchase returns 60,000 80,000 Purchase discounts 18,000 鈥� Gross sales revenue (after employee discounts) 鈥� 1,410,000 Sales returns 鈥� 97,500 Markups 鈥� 120,000 Markup cancellations 鈥� 40,000 Markdowns 鈥� 45,000 Markdown cancellations 鈥� 20,000 Freight-in 42,000 鈥� Employee discounts granted 鈥� 8,000 Loss from breakage (normal) 鈥� 4,500 486 Chapter 9 Inventories: Additional Valuation Issues Instructions Assuming that Waveland Inc. uses the conventional retail inventory method, compute the cost of its ending inventory at December 31, 2018.

Fiedler Co. follows the practice of valuing its inventory at the lower-ofcost-or-market. The following information is available from the company鈥檚 inventory records as of December 31, 2017. Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Completion & Disposal Cost/Unit Normal Profit Margin/Unit A 1,100 \(7.50 \)8.40 \(10.50 \)1.50 $1.80 B 800 8.20 7.90 9.40 0.90 1.20 C 1,000 5.60 5.40 7.20 1.15 0.60 D 1,000 3.80 4.20 6.30 0.80 1.50 E 1,400 6.40 6.30 6.70 0.70 1.00Instructions Greg Forda is an accounting clerk in the accounting department of Fiedler Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant. (a) Calculate the lower-of-cost-or-market using the individual-item approach. (b) Show the journal entry he will need to make in order to write down the ending inventory from cost to market. (c) Write a memo to Greg explaining what designated market value is as well as how it is computed. Use your calculations to aid in your explanation

Presented below is information related to Langston Hughes Corporation. Price LIFO Index Cost Retail Inventory on December 31, 2017, when dollar-value LIFO is adopted 100 \(36,000 \) 74,500 Inventory, December 31, 2018 110 ? 100,100 Instructions Compute the ending inventory under the dollar-value LIFO method at December 31, 2018. The cost-to-retail ratio for 2018 was 60%.
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