ACCOUNTING 2101/6101TESTING YOUR KNOWLEDGE CHAPTER S 1) Western Design Co. is a large retail furniture company that operates in two adjacent Accou Page 1 warehouses. One warehouse is a showroom, and the other is used to store merchandise On the night of February 20, 20x5, a fire broke out in the storage warehouse and destroyed the merchandise stored there. Fortunately, the fire did not reach the showroom, so all the merchandise on display was saved Although the company maintained a perpetual inventory system, its records were rather haphazard, and the last reliable physical inventory had been taken on December 31, 204 In addition, there was no control of the flow of goods between the showroom and the warehouse. Thus, it was impossible to tell which goods should have been in either place As a result, the insurance company required an independent estimate of the amount of loss. The insurance company examiners were satisfied when they received the following information Merchandise inventory, December 31, 20x4 Purchases, January 1 to February 20, 20x5 Purchase returns, January 1 to February 20, 20x5 Freight-in, January 1 to February 20, 20x5 Sales, January 1 to February 20, 20x5 Sales returns, January 1 to February 20, 20x5 Merchandise inventory in showroom on February 20, 20x5 Average gross margin 5 768,500 1,336,700 7,420 23,760 1,910,400 22,100 243,600 44% REQUIRED: Prepare a schedule that estimates the amount of inventory (at cost) lost in the fire Page ACCOUNTI CHAPTER 9 2) Carbin Company operates a large discount store and uses the retail inventory nm ethod to estimate the cost of ending inventory. Management suspeets that in recent weeks there have been unusually heavy losses from shopliting or employee pilfersge To estimate amount of the loss, the company has taken a physical inventory and will compare the with the estimated cost of inventery Oata from the accounting records of Carbin Company are as follows results At Cost At Retail April 1, beginning inventory Purchases Purchases returns and allawances Freight-in Sales Sales returns and allowances Employee discounts Normal shortages April 30. physical inventory at retail S 62.630 87800 165,600 5,540 118,300 3.960 1.490 132 400 1,080 800 85,000 REQURED: Calculate the estimated amount of inventory shortage at cost and at teta. ACCOUNTING 2101/6 101 IESI ING YOUR KNOW, II DGE CHAPTER9 3) Norman Bernhardt, inc manufactur maintained on each of the four products Page t man Bermhardt, inc manufactures and sells four products, the inventories of whics are at cost or market whichever is lower A normal profit marin rate of 12% i% usually The following information was compiled as of December 11, 20s8 Original I stimated Expected Selling Price Cost to Product Replace Cost to Dispose S 1900 84 00 63 00 86 00 S 31 00 127.00 73.00 78.00 11 0) 42.00 16 00 5.00 5800 162 00 114 00 151 00 Normal margin is 32% of selling price Assume 1.200 units of products A and B and 1,500 units ol products C and DI REQUIRED al Computer Application: EXCEL spreadsheet Lower of cost or-market 1) Use a computer spreadsheet (EXCEL) to prepare a schedule containing unit values incldig floor" and"ceiling") for determining the lower-of-cost or market on an individual product basis. The last column of the schedule should contain, lor each product, the unit value for the purpose of inventory valuation resulting from the application of the lower of cost or market rule 2) Prepare a separate schedule to disclose the total inventory values at cost and lower of cost or market REQUIRED: Ibl Journal Entry Prepare the journal entry to record the lower-of cost or-market for Norman Benhardt, Inc Assume tha Bernhardt, Inc, uses a perpetual inventory system l REQUIRED: Icl Explanation Prepare a brief memorandum to explain why expected selling prices are important in the application of the lower of-cost-or market rule