Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Textbook Question
Chapter 10, Problem 10.13E
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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Lower of Cost or Net Realizable Value (LCNRV) Rule
Determine the proper total inventory value for each of the following items in Erik Company's ending inventory:
a. Erik has 400 rolls of camera film that have become obsolete with the advent of digital cameras.
The films cost $3.30 each and are normally sold for $6.60. To clear out these old films,
Erik will drop their selling price to $1.98. There are no related selling costs.
b. Erik has four cameras in stock that have been used as demonstration models. The cameras cost
$760 and normally sell for $960. Because these cameras are in used condition, Erik has set
the selling price at $720 each. Expected selling costs are $20 per camera. New models of the
camera, already on order, will cost Erik $800 and will sell for $1,040.
Final inventory value
a. $
b. $
Waterway Frame Camera Shop uses the lower-of-cost-or-net realizable value basis for its inventory. The following data are available at December 31.
Item
Units
Cost per Unit
Net RealizableValue per Unit
Cameras:
Minolta
8
$163
$155
Canon
10
154
156
Light Meters:
Vivitar
20
121
110
Kodak
15
120
135
Information pertaining to the inventory of Palette Company follows.
LIFO Cost Selling Price Replacement Cost
Category: Supreme
Item A
$5,600
$6,400
$4,800
Item B
7,200
7,200
7,680
Item C
17,600
17,600
16,800
Category: Classic
Item X
28,800
28,800
30,400
Item Y
35,200
42,400
41,600
Item Z
56,000
48,000
52,800
The company has a normal profit margin of 20% of selling price and has no additional costs to complete or sell the items.
What is the lower-of-cost-or-market value of the company's inventory applying the rule to (a) each individual item and (b) to each inventory category?
Select one:
a. Inventory item: $150,400; Inventory Category: $150,400
b. Inventory item: $141,120; Inventory Category: $147,520
c. Inventory item: $147,200; Inventory Category: $147,200
d. Inventory item: $143,520; Inventory Category: $150,400
9
APR
35,874
11
A
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Chapter 10 Solutions
Intermediate Accounting
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