E 2-7 - Lower of cost and NRVThe closing inventory at cost of an entity amounted to P284,700. Thefollowing items were included at cost in the total:400 coats, which had cost P80 each and normally sold for P150each. Owing to a defect in manufacture, they were all sold afterthe reporting dateamounted to 5% of the proceeds.50% of their normal price. Selling expenses800 skirts, which had cost P20 each. These too were found to bedefective. Remedial work costs P5 per skirt and selling expensesfor the batch totaled P800. They were sold for P28 each.Required:Compute for the following:1. Amount of write-down to NRV.2. Amount to be reported as Inventories in the statement of financialposition.

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E 2-7 - Lower of cost and NRV The closing inventory at cost of an entity amounted to P284,700. The following items were included at cost in the total: 400 coats, which had cost P80 each and normally sold for P150 each. Owing to a defect in manufacture, they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds. 800 skirts, which had cost P20 each. These too were found to be defective. Remedial work costs P5 per skirt and selling expenses for the batch totaled P800. They were sold for P28 each. Required: Compute for the following: 1. Amount of write-down to NRV. 2. Amount to be reported as Inventories in the statement of financial position.

E 2-7 - Lower of cost and NRV The closing inventory at cost of an entity amounted to P284,700. The following items were included at cost in the total: 400 coats, which had cost P80 each and normally sold for P150 each. Owing to a defect in manufacture, they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds. 800 skirts, which had cost P20 each. These too were found to be defective. Remedial work costs P5 per skirt and selling expenses for the batch totaled P800. They were sold for P28 each. Required: Compute for the following: 1. Amount of write-down to NRV. 2. Amount to be reported as Inventories in the statement of financial position.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter6: Cost Of Goods Sold And Inventory

Section: Chapter Questions

Problem 37BE: Lower of Cost or Market Garcia Company uses FIFO, and its inventory at the end of the year was...

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Lower of Cost or Market Garcia Company uses FIFO, and its inventory at the end of the year was recorded in the accounting records at $17,800. Due to technological changes in the market, Garcia would be able to replace its inventory for $16,500. Required: 1. Using the lower of cost or market method, what amount should Garcia report for inventory on its balance sheet at the end of the year? 2. Prepare the journal entry required to value the inventory at the lower of cost or market.
The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, 10,000, were included in purchases but not in the physical count of ending inventory. b. Purchase of a machine for 2,000 was expensed. The machine has a 4-year life, no residual value, and straight-line depreciation is used. c. Wages payable of 2,000 were not accrued. d. Payment of next years rent, 4,000, was recorded as rent expense. e. Allowance for doubtful accounts of 5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of 70,000 and a fair value of 100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for 129,960 was received and recorded at its face value, and a gain of 59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest. Required: 1. Next Level Indicate the effect of each of the preceding errors on the companys assets, liabilities, shareholders equity, and net income in the year in which the error occurs. State whether the error causes an overstatement (+), an understatement (), or no effect (NE). 2. Prepare the correcting journal entry or entries required at the beginning of the year for each of the preceding errors, assuming the company discovers the error in the year after it was made. Ignore income taxes.
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