1.Given the following information for an inventory item of the
Scottsdale Corporation:
Using the LCM Rule, the proper inventory amount for the balance
sheet is:
Select one:
a. $98
b. $104
c. $111
d. $117
e. $124
2.
The following information is available for October for Jordan
Company:
A fire destroyed most of Jordan’s October 31 inventory warehouse,
leaving undamaged inventory with
a cost of $3,000. Using the gross profit method,
the estimated ending inventory destroyed by fire
is:
Select one:
a. $13,000
b. $35,889
c. $47,000
d. $50,000
e. $62,000
Ans. 1 | Option b $104 | |||
Ceiling = Estimated sales price - Cost of completion | ||||
$130 - $13 = $117 | ||||
Floor = Ceiling - Normal profit | ||||
$117 - $6 = $111 | ||||
Replacement cost = $98 | ||||
*Designated Market value = Mid value among replacement cost, ceiling and floor. | ||||
Designated market value = $111 | ||||
Proper inventory amount using LCM = Lower value between designated market value and Cost | ||||
Proper inventory amount (Cost) = $104 | ||||
Ans. 2 | Option b $47,000 | |||
Particulars | Amount | Amount | ||
Beginning inventory (at cost) | $50,000 | |||
Plus : Net purchase | $150,000 | |||
Cost of goods available for sale | $200,000 | |||
Less: Cost of goods sold | ||||
Net sales (at selling price) | $270,000 | |||
Less: Estimated gross profit | -$120,000 | |||
Estimated cost of goods sold | $150,000 | |||
Estimated cost of inventory before fire | $50,000 | |||
Less: Undamaged inventory | -$3,000 | |||
Estimated ending inventory destroyed by fire | $47,000 | |||
*Calculations: | ||||
Net purchase = Purchases - Purchase returns | ||||
$165,000 - $15,000 = $150,000 | ||||
Net sales = Sales - Sales returns | ||||
$290,000 - $20,000 = $270,000 | ||||
Markup on 60% of cost = 80% / (100% + 80%) * 100 = 44.4444% of sales | ||||
Estimated gross profit = Net sales * 44.44% | ||||
$270,000 * 44.44% | ||||
$120,000 | ||||
1.Given the following information for an inventory item of the Scottsdale Corporation: Using the LCM Rule,...
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