Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 10.11E
Lower of Cost or Market. Printmaster Distributors Company soils laser printers and replacement toner cartridges. Printmaster uses FIFO for inventory costing. It sells two models—black and color laser printers. The black printers and black toner cartridges are in Group 100 and the color printer and color toner cartridges are in Group 200 Printmaster provided the following information regarding inventory at the end of the current year.
| Group No | Model No | CRC | No. of Units | SP | Disposal | NPM | Cost |
| No. 100 Black Laser Printer | LP100 | $175 | 2,000 | $210 | $20 | $35 | $170 |
| No. 100 Black Toner | BT100 | 40 | 1,500 | 55 | 10 | 16 | 48 |
| No. 200 Color Laser Printer | CP200 | 200 | 3,400 | 235 | 25 | 20 | 185 |
| No. 200 Color Toner | CT200 | 65 | 2,750 | 145 | 15 | 25 | 55 |
Definitions:
CRC = Current Replacement Cost
SP = Selling Price
Disposal = Costs of Completion and Disposal
NPM = Normal Profit Margin
Required
- a. Conduct a lower-of-cost-or-market test for Printmaster assuming that it uses the total inventory approach for LCM computations
- b. Conduct a lower-of-cost-or-market test for Printmaster assuming that it uses the individual-item approach for LCM computations
- c. Conduct a lower-of-cost-or-market test for Printmaster assuming that it uses the group-by-group approach for LCM computations
- d. Prepare the
journal entry needed to adjust Printmaster’s inventory to a lower-of-cost-or-market (LCM) basis assuming that LCM is applied to individual items Printmaster uses the indirect approach to record any adjustments to LCM
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Gracia Company uses the lower of cost or net realizable value method to value inventory. Data regarding
the items in work in process inventory are presented below:
Markers Pens Highlighters
Historical cost 240,000 188,000 300,000
Selling price 360,000 250,000 360,000
Estimated cost to complete 480,000 50,000 68,000
Replacement cost 208,000 168,000 318,000
Normal profit margin as a percentage of selling price 25% 25% 10%
What is the measurement of the work in process inventory?
Stiles Corporation uses the LIFO cost flow assumption and is in the process of applying the LCM rule for each of two products in its ending inventory. A profit margin of 30% on the selling price is considered normal for each product. Specific data for each product are as follows:
Product A
Product B
Historical cost
$80
$96
Replacement cost
70
98
Estimated cost of disposal
32
30
Estimated selling price
150
120
Required:
1. What is the correct inventory value for each product?
Product A
$fill in the blank 1 per unit
Product B
$fill in the blank 2 per unit
2. Next Level With regard to requirement 1, what effect does the imposition of the constraints on market value have on the inventory valuations?
For Product A,
For Product B,
Painter Inc. sells several types of paint. Due to the low demand, it would be testing its inventory for impairment. It gathered the following information:
No.
brand
Type
Size
units
unit cost
unit selling price (udated)
Ave. Unit cost to sell
001 A
A
Water-based
4-liter
10
350
400
70
002
A
Water-based
16-liter
20
1,150
1,300
250
003
A
Acrylic
16-liter
20
1,200
1,700
300
004
B
Water-based
16-liter
5
1,075
1,250
200
005
B
Acrylic
4-liter
15
400
600
70
006
B
Acrylic
16-liter
10
1,250
2,000
250
How much should be reported as loss from inventory write-down?
Chapter 10 Solutions
Intermediate Accounting
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