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Professor Authored Problem SolutionsIntermediate Accounting 2Retail Inventory Method & LCMSolution to Problem 67Turnover RatiosInventory turnover ratio CGS Avg inventory 160,000 20,000 8.0Days sales in EI Avg inventory (CGS 365) 20,000 (160,000 365) 20,000 438.3562 45.625AR turnover ratio Sales Avg AR 270,000 66,000 4.0909Average collection period Avg AR (Sales 365) 66,000 (270,000 365) 66,000 739.7260 89.2222 2014 by W. David Albrecht. .393

Solution to Problem 68Retail Inventory MethodBeginning inventoryPurchases (gross)Freight inMarkupsMarkdownsGood available for saleSales (net)Sales discountsEnding inventory @ retail@ cost 10,500465,00012,000----487,500-----@ retail ,000We need to subtract sales @ gross. If sales is listed at gross, we ignore sales discounts. If sales is listedat net, we add sales discounts to sales@net to get sales @ gross.1.FIFO basis cost of net purchases retail of (net purchases MU ! MD) (465,000 12,000) (892,000 52,000 ! 112,000) 0.5733FIFO ratioEI @ FIFO cost 145,000 * 0.5733 83,131CGS2. 487,500 – 83,131 484,369Weighted averageWAvg ratio cost of (beg inv net purch) retail of (beg inv net purch MU ! MD) (10,500 465,000 12,000) (42,000 892,000 52,000 ! 112,000) 0.5578EI @ WA cost 145,000 * 0.55578 80,878CGS 487,500 – 80,878 406,622 2014 by W. David Albrecht. .394

3.Weighted average with LCMWavg/LCM ratio cost of (beg inv net purchases) retail of (beg inv net purchases MU) (10,500 465,000 12,000) (42,000 892,000 52,000) 0.49444.EI @ WALCM cost 145,000 * 0.4944 71,691CGS 487,500 – 71,691 415,809FIFO basis with LCMFIFO/LCM ratio cost of net purchases retail of (net purchases MU) (465,000 12,000) (892,000 52,000) 0.5053EI @ FIFOLCM cost 145,000 * 0.5733 73,268CGS 487,500 – 73,268 414,132 2014 by W. David Albrecht. .395

Solution to HW 69Retail inventory methodBeginning inventoryPurchases (gross)Freight inMarkupsMarkdownsGood available for saleSales gross)Sales discountsEnding inventory @ retail1.@ cost 52,320631,00052,000----735,320-----@ retail 00123,339FIFO basis cost of net purchases retail of (net purchases MU ! MD) (631,000 52,000) (1,079,327 72,000 ! 146,000) 0.6794FIFO ratioEI @ FIFO cost 123,339 * 0.6794 83,797CGS2. 735,320 – 83,797 651,523Weighted averageWAvg ratio cost of (beg inv net purch) retail of (beg inv net purch MU ! MD) (52,320 631,000 52,000) (96,444 1,079,327 72,000 ! 146,000) 0.6674EI @ WA cost 123,339 * 0.6674 82,316CGS 735,320 – 82,316 651,004 2014 by W. David Albrecht. .396

3.Weighted average with LCMWavg/LCM ratio cost of (beg inv net purchases) retail of (beg inv net purchases MU) (52,320 631,000 52,000) (96,444 1,079,327 72,000) 0.58934.EI @ WALCM cost 123,339 * .5893 72,684CGS 735,320 – 72,684 662,636FIFO basis with LCMFIFO/LCM ratio cost of net purchases retail of (net purchases MU) (631,000 52,000) (1,079,327 72,000) 0.5932EI @ FIFOLCM cost 123,339* 0.5932 73,164CGS 735,320 – 73,164 662,156 2014 by W. David Albrecht. .397

Solution to HW 70Lower of cost or 0estimatedsales price/ unit3.002.755.904.504.004.60marginalsellingcosts / unit0.250.150.200.400.300.50normalprofit / unit1.000.501.200.650.801.25What is the FIFO cost of ending inventory?ItemABCDEF2.# 2.602.905.303.252.554.20# 502.654.30total FIFOcost7501,2508101,5757421,6136,740Applying the LCM method on a product by product basis, write the journal entry for the LCMadjustment. What is the total adjusted cost of ending inventory?ItemABCDEF# ntreplacementcost / unit2.602.905.303.252.554.20 2014 by W. David Albrecht. tacceptableNRV – π1.752.104.503.452.902.85398

12/31/14 Cost of goods sold expenseInventoryadjustment for C (150 units * 0.10 / unit)1512/31/14 Cost of goods sold expenseInventoryadjustment for D (450 units * 0.05 / unit)22.5012/31/14 Cost of goods sold expenseInventoryadjustment for F (375 units * 0.20 / unit)75Total adjusted value for inventoryBalance before adjustmentWrite-downAdjusted balance1522.50756,740.00–112.506,627.50 2014 by W. David Albrecht. .399

Solution to HW 71Lower of cost or 24.30estimatedsales price/ sts / unit0.001.552.801.000.303.85normalprofit / unit10%5%25%10%15%15%What is the FIFO cost of ending inventory?ItemABCDEF2.# 15.609.7020.3013.252.5534.20# 13.758.2524.30total ing the LCM method on a product by product basis, write the journal entry for the LCMadjustment. What is the total adjusted cost of ending inventory?ItemABCDEF# units400200350120810550cost / unit14.309.5522.1013.758.2524.30market / cost / unit15.609.7020.3013.252.5534.20 2014 by W. David Albrecht. owestacceptableNRV – π19.937.7518.2013.853.1028.87400

12/31/14 Cost of goods sold expenseInventoryadjustment for B (200 units * 0.77 / unit)15412/31/14 Cost of goods sold expenseInventoryadjustment for C (300 units * 1.90 / unit)57012/31/14 Cost of goods sold expenseInventoryadjustment for E (810 units * 5.15 / unit)4,172Total adjusted value for inventoryBalance before adjustmentWrite-downAdjusted balance1545704,17237,063– 4,89632,167 2014 by W. David Albrecht. .401

Solution to HW 72Lower of cost or marketActual cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Estimated selling price . . . . . . . . . . . . . . . . . . . . . . . . 10Normal profit margin on selling price . . . . . . . . . . 10%Estimated cost to sell . . . . . . . . . . . . . . . . . . . . . . . . . . 2Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.2.3.What is the ceiling of the acceptable range?What is the floor of the acceptable range?What is the market?4.What is LCM?8 10 – 27 8 – 0.1*108 Replacement cost is outside range, theceiling is closes acceptable amount8 historical cost of 14 is higher than market of8Solution to HW 73Lower of cost or marketItemhist costAluminum70,000Cedar shake 86,000Louverd gl112,000Thermal W justment– 14,000– 6,6000– 00lowestacceptableNRV – π50,90077,400149,800124,600If using the direct write-down method as used in class, the necessary adjustment is:12/31Cost of goods sold expenseInventory32,60032,600If using the allowance method as explained in the textbook, the necessary adjustment is:12/31Cost of goods sold expenseAllowance 2014 by W. David Albrecht. .5,1005,100402

Professor Authored Problem SolutionsIntermediate Accounting 2Retail Inventory Method & LCMSolution to Problem 67Turnover RatiosInventory turnover ratio CGS Avg inventory 160,000 20,000 8.0Days sales in EI Avg inventory (CGS 365) 20,000 (160,000 365) 20,000 438.3562 45.625AR turnover ratio Sales Avg AR 270,000 66,000 4.0909Average collection period Avg AR (Sales 365) 66,000 (270,000 365) 66,000 739.7260 89.2222 2014 by W. David Albrecht. .393

Solution to Problem 68Retail Inventory MethodBeginning inventoryPurchases (gross)Freight inMarkupsMarkdownsGood available for saleSales (net)Sales discountsEnding inventory @ retail@ cost 10,500465,00012,000----487,500-----@ retail ,000We need to subtract sales @ gross. If sales is listed at gross, we ignore sales discounts. If sales is listedat net, we add sales discounts to sales@net to get sales @ gross.1.FIFO basis cost of net purchases retail of (net purchases MU ! MD) (465,000 12,000) (892,000 52,000 ! 112,000) 0.5733FIFO ratioEI @ FIFO cost 145,000 * 0.5733 83,131CGS2. 487,500 – 83,131 484,369Weighted averageWAvg ratio cost of (beg inv net purch) retail of (beg inv net purch MU ! MD) (10,500 465,000 12,000) (42,000 892,000 52,000 ! 112,000) 0.5578EI @ WA cost 145,000 * 0.55578 80,878CGS 487,500 – 80,878 406,622 2014 by W. David Albrecht. .394

3.Weighted average with LCMWavg/LCM ratio cost of (beg inv net purchases) retail of (beg inv net purchases MU) (10,500 465,000 12,000) (42,000 892,000 52,000) 0.49444.EI @ WALCM cost 145,000 * 0.4944 71,691CGS 487,500 – 71,691 415,809FIFO basis with LCMFIFO/LCM ratio cost of net purchases retail of (net purchases MU) (465,000 12,000) (892,000 52,000) 0.5053EI @ FIFOLCM cost 145,000 * 0.5733 73,268CGS 487,500 – 73,268 414,132 2014 by W. David Albrecht. .395

Solution to HW 69Retail inventory methodBeginning inventoryPurchases (gross)Freight inMarkupsMarkdownsGood available for saleSales gross)Sales discountsEnding inventory @ retail1.@ cost 52,320631,00052,000----735,320-----@ retail 00123,339FIFO basis cost of net purchases retail of (net purchases MU ! MD) (631,000 52,000) (1,079,327 72,000 ! 146,000) 0.6794FIFO ratioEI @ FIFO cost 123,339 * 0.6794 83,797CGS2. 735,320 – 83,797 651,523Weighted averageWAvg ratio cost of (beg inv net purch) retail of (beg inv net purch MU ! MD) (52,320 631,000 52,000) (96,444 1,079,327 72,000 ! 146,000) 0.6674EI @ WA cost 123,339 * 0.6674 82,316CGS 735,320 – 82,316 651,004 2014 by W. David Albrecht. .396

3.Weighted average with LCMWavg/LCM ratio cost of (beg inv net purchases) retail of (beg inv net purchases MU) (52,320 631,000 52,000) (96,444 1,079,327 72,000) 0.58934.EI @ WALCM cost 123,339 * .5893 72,684CGS 735,320 – 72,684 662,636FIFO basis with LCMFIFO/LCM ratio cost of net purchases retail of (net purchases MU) (631,000 52,000) (1,079,327 72,000) 0.5932EI @ FIFOLCM cost 123,339* 0.5932 73,164CGS 735,320 – 73,164 662,156 2014 by W. David Albrecht. .397

Solution to HW 70Lower of cost or 0estimatedsales price/ unit3.002.755.904.504.004.60marginalsellingcosts / unit0.250.150.200.400.300.50normalprofit / unit1.000.501.200.650.801.25What is the FIFO cost of ending inventory?ItemABCDEF2.# 2.602.905.303.252.554.20# 502.654.30total FIFOcost7501,2508101,5757421,6136,740Applying the LCM method on a product by product basis, write the journal entry for the LCMadjustment. What is the total adjusted cost of ending inventory?ItemABCDEF# ntreplacementcost / unit2.602.905.303.252.554.20 2014 by W. David Albrecht. tacceptableNRV – π1.752.104.503.452.902.85398

12/31/14 Cost of goods sold expenseInventoryadjustment for C (150 units * 0.10 / unit)1512/31/14 Cost of goods sold expenseInventoryadjustment for D (450 units * 0.05 / unit)22.5012/31/14 Cost of goods sold expenseInventoryadjustment for F (375 units * 0.20 / unit)75Total adjusted value for inventoryBalance before adjustmentWrite-downAdjusted balance1522.50756,740.00–112.506,627.50 2014 by W. David Albrecht. .399

Solution to HW 71Lower of cost or 24.30estimatedsales price/ sts / unit0.001.552.801.000.303.85normalprofit / unit10%5%25%10%15%15%What is the FIFO cost of ending inventory?ItemABCDEF2.# 15.609.7020.3013.252.5534.20# 13.758.2524.30total ing the LCM method on a product by product basis, write the journal entry for the LCMadjustment. What is the total adjusted cost of ending inventory?ItemABCDEF# units400200350120810550cost / unit14.309.5522.1013.758.2524.30market / cost / unit15.609.7020.3013.252.5534.20 2014 by W. David Albrecht. owestacceptableNRV – π19.937.7518.2013.853.1028.87400

12/31/14 Cost of goods sold expenseInventoryadjustment for B (200 units * 0.77 / unit)15412/31/14 Cost of goods sold expenseInventoryadjustment for C (300 units * 1.90 / unit)57012/31/14 Cost of goods sold expenseInventoryadjustment for E (810 units * 5.15 / unit)4,172Total adjusted value for inventoryBalance before adjustmentWrite-downAdjusted balance1545704,17237,063– 4,89632,167 2014 by W. David Albrecht. .401

Solution to HW 72Lower of cost or marketActual cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Estimated selling price . . . . . . . . . . . . . . . . . . . . . . . . 10Normal profit margin on selling price . . . . . . . . . . 10%Estimated cost to sell . . . . . . . . . . . . . . . . . . . . . . . . . . 2Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.2.3.What is the ceiling of the acceptable range?What is the floor of the acceptable range?What is the market?4.What is LCM?8 10 – 27 8 – 0.1*108 Replacement cost is outside range, theceiling is closes acceptable amount8 historical cost of 14 is higher than market of8Solution to HW 73Lower of cost or marketItemhist costAluminum70,

Retail Inventory Method & LCM Solution to Problem 67 Turnover Ratios Inventory turnover ratio CGS Avg inventory 8.0 Days sales in EI Avg inventory (CGS 365) 45.625 AR turnover ratio Sales Avg AR 4.0909 Average collection period Avg AR (Sales