Question
(1) Lower of Cost or Market Palmquist Company has five different inventory items that it values by the lower of cost or market rule applied
(1) Lower of Cost or Market
Palmquist Company has five different inventory items that it values by the lower of cost or market rule applied on an individual item basis. The normal markup on all items is 20% of cost. The following information is obtained from the companys records:
Item | Units | Cost | Replacement Cost | Net Realizable Value |
1 | 500 | $10.00 | $ 9.10 | $ 9.20 |
2 | 400 | 8.00 | 8.10 | 7.80 |
3 | 300 | 15.00 | 13.50 | 14.00 |
4 | 200 | 18.00 | 12.00 | 17.00 |
5 | 100 | 25.00 | 25.50 | 25.30 |
Required:
Assume that Palmquist uses the FIFO inventory valuation method. Compute the correct inventory value under the lower of cost or market rule. Round your answers to the nearest cent.
Item | Lower of Cost or Market | |
1 | $ | |
2 | ||
3 | ||
4 | ||
5 |
Compute the total inventory value if the lower of cost or market is applied to each individual item.
$
Assume that Palmquist uses the LIFO inventory method. Compute the correct inventory value under the lower of cost or market rule. Round your answers to the nearest cent.
Item | Lower of Cost or Market | |
1 | $ | |
2 | ||
3 | ||
4 | ||
5 |
Compute the total inventory value if the lower of cost or market is applied to each individual item.
$
Assume that Palmquist uses IFRS. Compute the correct inventory value under the lower of cost or market rule. Round your answers to the nearest cent.
Item | Lower of Cost or Market | |
1 | $ | |
2 | ||
3 | ||
4 | ||
5 |
Assume that Palmquist uses IFRS. Compute the correct inventory value under the lower of cost or market rule.
$
Explain the differences between the inventory valuations reported under IFRS and U.S. GAAP. The inventory valuation reported under IFRS is the inventory valuation reported under U.S. GAAP. This difference arises because IFRS define market value as and do not consider . Therefore, IFRS will result in market values that are always greater than or equal to those reported under U.S. GAAP. Because some of the U.S. GAAP inventory (items 1, 3, and 4) was valued at either replacement cost or net realizable value minus a normal profit margin, the IFRS lower of cost or market valuation of inventory will be the U.S. GAAP inventory valuation.
(2) Retail Inventory Method
Turner Corporation uses the retail inventory method. The following information relates to 2016:
Cost | Retail | Cost | Retail | |||
Inventory, January 1 | $ 29,000 | $ 45,000 | Additional markups | $ 50,000 | ||
Purchases (gross price) | 140,000 | 190,000 | Markup cancellations | 10,000 | ||
Purchases discounts taken | 3,000 | Markdowns | 15,000 | |||
Purchases returns | 5,000 | 8,000 | Markdown cancellations | 3,000 | ||
Freight-in | 20,000 | Net Sales | 190,000 | |||
Employee discounts | 3,000 |
Required:
1. Compute the cost of the ending inventory under each of the following cost flow assumptions: FIFO. Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.
TURNER CORPORATION | ||
Calculation of Ending Inventory by Retail Inventory Method FIFO | ||
For the year 2016 | ||
Cost | Retail | |
$ | $ | |
$ | $ | |
$ | $ | |
Ending inventory at retail | $ | |
Ending inventory at cost | $ |
2. Compute the cost of the ending inventory under each of the following cost flow assumptions: Average cost. Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.
TURNER CORPORATION | ||
Calculation of Ending Inventory by Retail Inventory Method Average Cost | ||
For the year 2016 | ||
Cost | Retail | |
$ | $ | |
$ | ||
Ending inventory at retail | $ | |
Ending inventory at cost | $ |
3. Compute the cost of the ending inventory under each of the following cost flow assumptions: LIFO. Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.
TURNER CORPORATION | ||
Calculation of Ending Inventory by Retail Inventory Method LIFO | ||
For the year 2016 | ||
Cost | Retail | |
$ | $ | |
$ | $ | |
$ | $ | |
$ | $ | |
Ending inventory at retail | $ | |
Ending inventory at cost | $ |
4. Compute the cost of the ending inventory under each of the following cost flow assumptions: Lower of cost or market (based on average cost). Round the cost-to-retail ratio to three decimal places. If required, round to the nearest dollar.
TURNER CORPORATION | ||
Calculation of Ending Inventory by Retail Inventory Method Lower of Cost or Market (based on average cost) | ||
For the year 2016 | ||
Cost | Retail | |
$ | $ | |
$ | $ | |
Ending inventory at retail | $ | |
Ending inventory at LCM | $ |
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