Garth Brooks Specialty Company, a division of Fresh Horses Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1973, Brooks has assumed a first-in, first-out cost flow in its perpetual inventory system. Except for overhead, manufacturing costs are accumulated using actual costs. Overhead is applied to production using predetermined overhead rates. The balances of the inventory accounts at the end of Brooks's fiscal year, November 30, 2008, are shown below. The inventories are stated at cost before any year-end adjustments.

Finished goods .... $647,000

Work-in-process .... 112,500

Raw materials ..... 240,000

Factory supplies .... 69,000

The information shown on page 476 relates to Brooks's inventory and operations.

1. The finished goods inventory consists of the items analyzed below.

2. One-half of the head-tube shifter finished goods inventory is held by catalog outlets on consignment.
3. Three-quarters of the bar-end shifter finished goods inventory has been pledged as collateral for a bank loan.
4. One-half of the raw materials balance represents derailleurs acquired at a contracted price 20 percent above the current market price. The market value of the rest of the raw materials is $127,400.
5. The total market value of the work-in-process inventory is $108,700.
6. Included in the cost of factory supplies are obsolete items with an historical cost of $4,200. The market value of the remaining factory supplies is $65,900.
7. Brooks applies the lower-of-cost-or-market method to each of the three types of shifters in finished goods inventory. For each of the other three inventory accounts, Brooks applies the lower-of-cost-or-market method to the total of each inventory account.
8. Consider all amounts presented above to be material in relation to Brooks's financial statements taken as a whole.

Instructions
(a) Prepare the inventory section of Brooks's statement of financial position as of November 30, 2008, including any required note(s).
(b) Without prejudice to your answer to requirement (a), assume that the market value of Brooks's inventories is less than cost. Explain how this decline would be presented in Brooks's income statement for the fiscal year ended November 30,2008.

Transcribed Image Text:

Market Down-tube shifter Standard model Click adjustment model Deluxe model $ 67,500 67,000 87,000 110,000 264,000 94,500 108,000 270,000 Total down-tubeshifters Bar-end shifter Standard model Click adjustment model 83,000 99.000 182,000 90,050 97,550 187,600 Total bar-end shifters Head-tube shifter Standard model Click adjustment model 78,000 117,000 195,000 $647,000 77,650 119,300 196,950 $648,550 2 Total head-tube shifters Total finished goods