Problem I: (15 pts) Below is information about the products that a company has in its...
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Problem I: (15 pts) Below is information about the products that a company has in its ending inventory. The company will be using the lower of cost or market method (LCM) to determine the inventory valuation for financial statement purposes. Specific cost per unit data for each of its products is as follows: Product #3 $200 240 Product #1 Product #2 Cost $300 $70 Replacement Cost Selling price Disposal costs |Normal profit margin 240 60 250 100 250 5. 30 15 70 60 A. Using the information above, complete the following chart: Product #1 Product #2 Product #3 Ceiling Floor Designated Market Value B. Indicate in the following chart which cost is lower: the original "cost" or the designated market value ("DVM"). Also, indicate with a "yes" or "no" whether the company will need to adjust the cost of its inventory down. Product #1 Product #2 Product #3 Which is lower: cost or DMV? Is a write-down necessary? Yes or no? Problem II: (worth 13 points) Takado Corp. incurred a total loss of its inventory due to fires on the West Coast. Takado lost its inventory on September 1, 2020. The following information is available for 2020: Net sales (1/1/20 – 8/31/20) Inventory-1/1/20 Net purchases (1/1/20- 8/31/20) $9,000,000 400,000 6,000,000 The company's gross profit percentage as a percent of sales is consistent from year to year. On its income statement in the prior year, the company noted its net sales amounted to $8,000,000, and its cost of goods sold amounted to $3,200,000. Answer: $ Question: What is the estimated cost of the lost inventory? (8 points) (space for calculations is on the next page) Problem III: (12 pts) Najette Corp. uses the lower-of-cost-or-market (LCM) inventory valuation method. On 12/31/20, it has 2,000 units of a certain product in its year-end inventory. These units have an original cost of $100 each. A lower-of-cost-or-market analysis shows that the designated market value of these units is $70 each. A. Assuming Najette uses the direct method to adjust its inventory to the lower-of-cost-or-market, prepare the year-end adjusting entry to reflect the application of the LCM method. Date Debit Credit 12/31/20 B. Assume, instead, that Najette uses the indirect method to adjust its inventory to the lower-of-cost-or- market, and also assume the "Allowance to Reduce Inventory to Market" account has a beginning normal account balance of $20,000. Prepare the year-end adjusting entry to reflect the application of the LCM method. Date Debit Credit 12/31/20 Problem I: (15 pts) Below is information about the products that a company has in its ending inventory. The company will be using the lower of cost or market method (LCM) to determine the inventory valuation for financial statement purposes. Specific cost per unit data for each of its products is as follows: Product #3 $200 240 Product #1 Product #2 Cost $300 $70 Replacement Cost Selling price Disposal costs |Normal profit margin 240 60 250 100 250 5. 30 15 70 60 A. Using the information above, complete the following chart: Product #1 Product #2 Product #3 Ceiling Floor Designated Market Value B. Indicate in the following chart which cost is lower: the original "cost" or the designated market value ("DVM"). Also, indicate with a "yes" or "no" whether the company will need to adjust the cost of its inventory down. Product #1 Product #2 Product #3 Which is lower: cost or DMV? Is a write-down necessary? Yes or no? Problem II: (worth 13 points) Takado Corp. incurred a total loss of its inventory due to fires on the West Coast. Takado lost its inventory on September 1, 2020. The following information is available for 2020: Net sales (1/1/20 – 8/31/20) Inventory-1/1/20 Net purchases (1/1/20- 8/31/20) $9,000,000 400,000 6,000,000 The company's gross profit percentage as a percent of sales is consistent from year to year. On its income statement in the prior year, the company noted its net sales amounted to $8,000,000, and its cost of goods sold amounted to $3,200,000. Answer: $ Question: What is the estimated cost of the lost inventory? (8 points) (space for calculations is on the next page) Problem III: (12 pts) Najette Corp. uses the lower-of-cost-or-market (LCM) inventory valuation method. On 12/31/20, it has 2,000 units of a certain product in its year-end inventory. These units have an original cost of $100 each. A lower-of-cost-or-market analysis shows that the designated market value of these units is $70 each. A. Assuming Najette uses the direct method to adjust its inventory to the lower-of-cost-or-market, prepare the year-end adjusting entry to reflect the application of the LCM method. Date Debit Credit 12/31/20 B. Assume, instead, that Najette uses the indirect method to adjust its inventory to the lower-of-cost-or- market, and also assume the "Allowance to Reduce Inventory to Market" account has a beginning normal account balance of $20,000. Prepare the year-end adjusting entry to reflect the application of the LCM method. Date Debit Credit 12/31/20
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Related Book For
Operations Management Managing Global Supply Chains
ISBN: 978-1506302935
1st edition
Authors: Ray R. Venkataraman, Jeffrey K. Pinto
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