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AccountingIntermediate Accounting: Reporting And Analysis3rd Edition

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Chapter 8, Problem 8C
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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Problem 1GI
Problem 2GI
Problem 3GI
Problem 4GI
Problem 5GI
Problem 6GI
Problem 7GI
Problem 8GI
Problem 9GI
Problem 10GI
Problem 11GI
Problem 12GI
Problem 13GI
Problem 14GI
Problem 15GI
Problem 16GI
Problem 17GI
Problem 18GI
Problem 19GI
Problem 20GI
Problem 21GI
Problem 1MC
Problem 2MC
Problem 3MC
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Problem 5MC
Problem 6MC
Problem 7MC
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Problem 10MC
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Problem 3RE
Problem 4RE
Problem 5RE
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Problem 7RE
Problem 8RE
Problem 9RE
Problem 10RE
Problem 11RE
Problem 12RE
Problem 13RE
Problem 14RE
Problem 1E
Problem 2E
Problem 3E
Problem 4E
Problem 5E
Problem 6E
Problem 7E
Problem 8E
Problem 9E
Problem 10E
Problem 11E
Problem 12E
Problem 13E
Problem 14E
Problem 15E
Problem 16E
Problem 17E
Problem 18E
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Problem 1P
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Problem 4P
Problem 5P
Problem 6P
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Problem 9P
Problem 10P
Problem 11P
Problem 12P
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Problem 14P
Problem 15P
Problem 16P
Problem 1C
Problem 2C
Problem 3C
Problem 4C
Problem 5C
Problem 6C
Problem 7C
Problem 8C
Problem 10C
Problem 11C
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Various Inventory Issues

Hudson Company, which is both a wholesaler and a retailer, purchases its inventories from various suppliers. Additional facts tor Hudson’s wholesale d operations are as follows:

  • Hudson incurs substantial warehousing costs.
  • Hudson uses the lower of cost or market rule.
  • The replacement cost of the inventories is below the net realizable value and above the net realizable value minus the normal profit margin. The original cost of the inventories is above the replacement cost and below the net realizable value.

Additional facts for Hudson’s retail operations are as follows:

  • Hudson determines the estimated cost of its ending inventories held for sale at retail using the conventional retail inventory method.
  • Hudson incurs substantial freight-in costs.
  • Hudson has net additional markups and net markdowns.

Required:

1. Theoretically, how should Hudson account for the warehousing costs related to its wholesale inventories? Why?

2. a. In general, explain why the lower of cost or market rule is used to report inventory.

b. At which amount should Hudson report the wholesale inventories on its balance sheet? Explain the application of the lower of cost or market rule in this situation.

3. In the calculation of the cost-to-retail percentage used to determine the estimated cost of its ending retail inventories, how should Hudson treat:

a. freight-in costs

b. net additional markups

c. net markdowns

4. Explain why Hudson’s retail inventory method approximates lower of average cost or market.

1.

To determine

Explain the reason for the accounting treatment for the warehousing costs related to its wholesale inventories by Company H.

Explanation

Retail inventory method: It takes into account all the retail amounts that is, the current selling prices. Under this method, the goods available for sale, at retail is deducted from the sales, at retail to determine the ending inventory, at retail.

Company H should account its warehousing costs as a part of i...

2.

To determine

Explain the reason for the valuation of inventory at the lower of cost or market and state the amount at which the Company H’s wholesale inventories should be reported in the balance sheet.

3.

To determine

Explain the treatment of the freight-in costs, net mark ups, and net markdowns in the calculation of the cost-to-retail percentage used to determine the estimated cost of its ending retail inventories.

4.

To determine

Explain the reason for the retail inventory method of Company H approximates lower of average cost or market.

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Chapter 8 Solutions

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Ch-8 P-1GICh-8 P-2GICh-8 P-3GICh-8 P-4GICh-8 P-5GICh-8 P-6GICh-8 P-7GICh-8 P-8GICh-8 P-9GICh-8 P-10GI
Ch-8 P-11GICh-8 P-12GICh-8 P-13GICh-8 P-14GICh-8 P-15GICh-8 P-16GICh-8 P-17GICh-8 P-18GICh-8 P-19GICh-8 P-20GICh-8 P-21GICh-8 P-1MCCh-8 P-2MCCh-8 P-3MCCh-8 P-4MCCh-8 P-5MCCh-8 P-6MCCh-8 P-7MCCh-8 P-8MCCh-8 P-9MCCh-8 P-10MCCh-8 P-1RECh-8 P-2RECh-8 P-3RECh-8 P-4RECh-8 P-5RECh-8 P-6RECh-8 P-7RECh-8 P-8RECh-8 P-9RECh-8 P-10RECh-8 P-11RECh-8 P-12RECh-8 P-13RECh-8 P-14RECh-8 P-1ECh-8 P-2ECh-8 P-3ECh-8 P-4ECh-8 P-5ECh-8 P-6ECh-8 P-7ECh-8 P-8ECh-8 P-9ECh-8 P-10ECh-8 P-11ECh-8 P-12ECh-8 P-13ECh-8 P-14ECh-8 P-15ECh-8 P-16ECh-8 P-17ECh-8 P-18ECh-8 P-19ECh-8 P-1PCh-8 P-2PCh-8 P-3PCh-8 P-4PCh-8 P-5PCh-8 P-6PCh-8 P-7PCh-8 P-8PCh-8 P-9PCh-8 P-10PCh-8 P-11PCh-8 P-12PCh-8 P-13PCh-8 P-14PCh-8 P-15PCh-8 P-16PCh-8 P-1CCh-8 P-2CCh-8 P-3CCh-8 P-4CCh-8 P-5CCh-8 P-6CCh-8 P-7CCh-8 P-8CCh-8 P-10CCh-8 P-11C

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