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Chapter 9: Question 2BE (page 475)

Floyd Corporation has the following four items in its ending inventory. Item Cost Net Realizable Value (NRV) Jokers \(2,000 \)2,100 Penguins 5,000 4,950 Riddlers 4,400 4,625 Scarecrows 3,200 3,830 Determine the following: (a) the LCNRV for each item, and (b) the amount of write-down, if any, using (1) an item-by-item LCNRV evaluation and (2) a total category LCNRV evaluation

Short Answer

Expert verified

The LCNRV for item-by-item basis equals $14,550, and per total category, it equals $14,600.

The written in case of item-by-item basis equals $50, and per total category, it equals $0.

Step by step solution

01

Calculation of LCNRV for item-by-item basis and total category basis

(a) (1 & 2) LCNRV is calculated as follows:

Item

Cost

NRV

LCNRV

Item-by-Item

Total Category

Jokers

$2,000

$2,100

$2,000

Penguins

5,000

4,950

4,950

Riddlers

4,400

4,625

4,400

Scarecrows

3,200

3,830

3,200

Total

$14,600

$15,505

$14,550

$14,600

02

Calculation of amount written down as per the item-by-item basis.

(b) (1)

Amount written down per item-by-item basis is calculated as follows:

AmountWrittenDownasPerItembyItembasis=TotalCost-LCNRVasPerItem-byItembasis=$14,600-$14,550=$50

03

Calculation of amount written down per total category basis

(b) (2)

Amount written down per total category basis is calculated as follows:

Amountwrittendownpertotalcategorybasis=TotalCost-LCNRVasPerTotalCategorybasis=$14,600-$14,600=$0

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Most popular questions from this chapter

Phil Collins Realty Corporation purchased a tract of unimproved land for \(55,000. This land was improved and subdivided into building lots at an additional cost of \)34,460. These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follows. Group No. of Lots Price per Lot 1 9 \(3,000 2 15 4,000 3 17 2,400 Operating expenses for the year allocated to this project total \)18,200. Lots unsold at the year-end were as follows. Group 1 5 lots Group 2 7 lots Group 3 2 lots Instructions At the end of the fiscal year Phil Collins Realty Corporation instructs you to arrive at the net income realized on this operation to date.

(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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Dover Company began operations in 2017 and determined its ending inventory at cost and at LCNRV at December 31, 2017, and December 31, 2018. This information is presented below. Cost Net Realizable Value 12/31/17 \(346,000 \)322,000 12/31/18 410,000 390,000 Instructions (a) Prepare the journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method. (b) Prepare journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual system using the loss method. (c) Which of the two methods above provides the higher net income in each year?

Starfish Company (a company using GAAP and the LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish鈥檚 financials? (a) During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (b) During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (d) During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory methodare used as compared to GAAP and LIFO.
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