1460T_c09.qxd01:09:200609:04 AM Page455 EQA Exercises·455 Instructions (a)Assuming that the market price as of December 31,2008,is $3.30,how would this matter be treated in the accounts and statements?Explain. (b) Assuming that the market price as of December 31,2008,is $2.70,instead of $3.30,how would you treat this situation in the accounts and statements? (c)Give the entry in January 2009,when the 36,000-gallon shipment is received,assuming that the situation given in (b)above existed at December 31,2008,and that the market price in January 2009 was $2.70 per gallon.Give an explanation of your treatment. (L0 5)E9-11 (Gross Profit Method)Each of the following gross profit percentages is expressed in terms of cost. 1.20%.3.336%. 2.25%.4.50%. Instructions Indicate the gross profit percentage in terms of sales for each of the above. (L0 5)E9-12 (Gross Profit Method)Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes.Presented below is information for the month of May. Inventory,May 1 s160.000 Purchases(gross) 640,000 Freight-in 30,000 Sales 1,000.000 Sales returns 70,000 Purchase discounts 12.000 Instructions (a)Compute the estimated inventory at May 31,assuming that the gross profit is 30%of sales. (b)Compute the estimated inventory at May 31,assuming that the gross profit is 30%of cost. (L0 5)E9-13 (Gross Profit Method)Tim Legler requires an estimate of the cost of goods lost by fire on March 9.Merchandise on hand on January 1 was $38,000.Purchases since January 1 were $72,000; freight-in,$3,400;purchase returns and allowances,$2,400.Sales are made at 33%%above cost and totaled $100,000 to March 9.Goods costing $10,900 were left undamaged by the fire;remaining goods were destroyed. Instructions (a)Compute the cost of goods destroyed. (b)Compute the cost of goods destroyed,assuming that the gross profit is 33%%of sales. (L0 5)E9-14 (Gross Profit Method)Rasheed Wallace Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken.The corporation's books disclosed the following. Beginning inventory $170.000 Sales $650,000 Purchases for the year 390,000 Sales returns 24,000 Purchase returns 30,000 Rate of gross margin on net sales 40% Merchandise with a selling price of $21,000 remained undamaged after the fire.Damaged merchandise with an original selling price of $15,000 had a net realizable value of $5,300. Instructions Compute the amount of the loss as a result of the fire,assuming that the corporation had no insurance coverage (LO 5)E9-15 (Gross Profit Method)You are called by Tim Duncan of Spurs Co.on July 16 and asked to pre- pare a claim for insurance as a result of a theft that took place the night before.You suggest that an inventory be taken immediately.The following data are available. Inventory,July 1 $38.000 Purchases-goods placed in stock July 1-15 85.000 Sales-goods delivered to customers (gross) 116,000 Sales returns-goods returned to stock 4.000 Your client reports that the goods on hand on July 16 cost $30,500,but you determine that this figure includes goods of $6,000 received on a consignment basis.Your past records show that sales are made at approximately 40%over cost.Duncan's insurance covers only goods owned. Instructions Compute the claim against the insurance company
Instructions (a) Assuming that the market price as of December 31, 2008, is $3.30, how would this matter be treated in the accounts and statements? Explain. (b) Assuming that the market price as of December 31, 2008, is $2.70, instead of $3.30, how would you treat this situation in the accounts and statements? (c) Give the entry in January 2009, when the 36,000-gallon shipment is received, assuming that the situation given in (b) above existed at December 31, 2008, and that the market price in January 2009 was $2.70 per gallon. Give an explanation of your treatment. E9-11 (Gross Profit Method) Each of the following gross profit percentages is expressed in terms of cost. 1. 20%. 3. 331 ⁄3%. 2. 25%. 4. 50%. Instructions Indicate the gross profit percentage in terms of sales for each of the above. E9-12 (Gross Profit Method) Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Inventory, May 1 $ 160,000 Purchases (gross) 640,000 Freight-in 30,000 Sales 1,000,000 Sales returns 70,000 Purchase discounts 12,000 Instructions (a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost. E9-13 (Gross Profit Method) Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Sales are made at 331 ⁄3% above cost and totaled $100,000 to March 9. Goods costing $10,900 were left undamaged by the fire; remaining goods were destroyed. Instructions (a) Compute the cost of goods destroyed. (b) Compute the cost of goods destroyed, assuming that the gross profit is 331 ⁄3% of sales. E9-14 (Gross Profit Method) Rasheed Wallace Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation’s books disclosed the following. Beginning inventory $170,000 Sales $650,000 Purchases for the year 390,000 Sales returns 24,000 Purchase returns 30,000 Rate of gross margin on net sales 40% Merchandise with a selling price of $21,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $15,000 had a net realizable value of $5,300. Instructions Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage. E9-15 (Gross Profit Method) You are called by Tim Duncan of Spurs Co. on July 16 and asked to prepare a claim for insurance as a result of a theft that took place the night before. You suggest that an inventory be taken immediately. The following data are available. Inventory, July 1 $ 38,000 Purchases—goods placed in stock July 1–15 85,000 Sales—goods delivered to customers (gross) 116,000 Sales returns—goods returned to stock 4,000 Your client reports that the goods on hand on July 16 cost $30,500, but you determine that this figure includes goods of $6,000 received on a consignment basis. Your past records show that sales are made at approximately 40% over cost. Duncan’s insurance covers only goods owned. Instructions Compute the claim against the insurance company. Exercises • 455 (L0 5) (L0 5) (L0 5) (L0 5) (L0 5) 1460T_c09.qxd 01:09:2006 09:04 AM Page 455
1460T_c09.qxd01:09:200609:04 AM Page456 EQA 456.Chapter 9 Inventories:Additional Valuation Issues (L0 5)E9-16 (Gross Profit Method)Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber 25% Millwork 30% Hardware and fittings 40% On August 18,a fire destroyed the office,lumber shed,and a considerable portion of the lumber stacked in the yard.To file a report of loss for insurance purposes,the company must know what the inventories were immediately preceding the fire.No detail or perpetual inventory records of any kind were main- tained.The only pertinent information you are able to obtain are the following facts from the general ledger,which was kept in a fireproof vault and thus escaped destruction. Lumber Millwork Hardware Inventory,Jan.1,2008 $250,000 $90,000 $45,000 Purchases to Aug.18,2008 1,500.000 375,000 160.000 Sales to Aug.18,2008 2,080.000 533,000 210.000 Instructions Submit your estimate of the inventory amounts immediately preceding the fire. (L0 5)E9-17 (Gross Profit Method) Presented below is information related to Warren Moon Corporation for the current year. Beginning inventory $600,000 Purchases 1,500,000 Total goods available for sale $2,100,000 Sales 2,500,000 Instructions Compute the ending inventory,assuming that (a)gross profit is 45%of sales;(b)gross profit is 60%of cost;(c)gross profit is 35%of sales;and (d)gross profit is 25%of cost. (L0 6)E9-18 (Retail Inventory Method)Presented below is information related to Bobby Engram Company. ⊕ Cost Retail Beginning inventory $58,000 $100,000 Purchases (net) 122.000 200,000 Net markups 10,345 Net markdowns 26,135 Sales 186,000 Instructions (a)Compute the ending inventory at retail. (b)Compute a cost-to-retail percentage(round to two decimals)under the following conditions. (1)Excluding both markups and markdowns. (2) Excluding markups but including markdowns. (3)Excluding markdowns but including markups (4)Including both markdowns and markups. (c)Which of the methods in (b)above (1,2,3,or 4)does the following? (1)Provides the most conservative estimate of ending inventory. (2)Provides an approximation of lower-of-cost-or-market. (3)Is used in the conventional retail method. (d)Compute ending inventory at lower-of-cost-or-market(round to nearest dollar). (e)Compute cost of goods sold based on (d). (f)Compute gross margin based on(d). (L0 6)E9-19 (Retail Inventory Method)Presented below is information related to Ricky Henderson Company. Cost Retail Beginning inventory $200,000 $280.000 Purchases 1.375.000 2,140.000 Markups 95.000 Markup cancellations 15.000 Markdowns 35,000 Markdown cancellations 5,000 Sales 2.200.000
E9-16 (Gross Profit Method) Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber 25% Millwork 30% Hardware and fittings 40% On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction. Lumber Millwork Hardware Inventory, Jan. 1, 2008 $ 250,000 $ 90,000 $ 45,000 Purchases to Aug. 18, 2008 1,500,000 375,000 160,000 Sales to Aug. 18, 2008 2,080,000 533,000 210,000 Instructions Submit your estimate of the inventory amounts immediately preceding the fire. E9-17 (Gross Profit Method) Presented below is information related to Warren Moon Corporation for the current year. Beginning inventory $ 600,000 Purchases 1,500,000 Total goods available for sale $2,100,000 Sales 2,500,000 Instructions Compute the ending inventory, assuming that (a) gross profit is 45% of sales; (b) gross profit is 60% of cost; (c) gross profit is 35% of sales; and (d) gross profit is 25% of cost. E9-18 (Retail Inventory Method) Presented below is information related to Bobby Engram Company. Cost Retail Beginning inventory $ 58,000 $100,000 Purchases (net) 122,000 200,000 Net markups 10,345 Net markdowns 26,135 Sales 186,000 Instructions (a) Compute the ending inventory at retail. (b) Compute a cost-to-retail percentage (round to two decimals) under the following conditions. (1) Excluding both markups and markdowns. (2) Excluding markups but including markdowns. (3) Excluding markdowns but including markups. (4) Including both markdowns and markups. (c) Which of the methods in (b) above (1, 2, 3, or 4) does the following? (1) Provides the most conservative estimate of ending inventory. (2) Provides an approximation of lower-of-cost-or-market. (3) Is used in the conventional retail method. (d) Compute ending inventory at lower-of-cost-or-market (round to nearest dollar). (e) Compute cost of goods sold based on (d). (f) Compute gross margin based on (d). E9-19 (Retail Inventory Method) Presented below is information related to Ricky Henderson Company. Cost Retail Beginning inventory $ 200,000 $ 280,000 Purchases 1,375,000 2,140,000 Markups 95,000 Markup cancellations 15,000 Markdowns 35,000 Markdown cancellations 5,000 Sales 2,200,000 456 • Chapter 9 Inventories: Additional Valuation Issues (L0 5) (L0 5) (L0 6) (L0 6) 1460T_c09.qxd 01:09:2006 09:04 AM Page 456