Question: Assume that a Logan Burger restaurant has the following perpetual inventory record for hamburger patties:
Date PurchasesCost ofMerchandise
Goods SoldInventory on Hand
Jul. 9 $ 450 $ 450
22 $ 270 180
31 210 390
At July 31, the accountant for the restaurant determines that the current replacementcost of the ending merchandise inventory is $435. Make any adjusting entry needed toapply the lower-of-cost-or-market rule. Merchandise inventory would be reported onthe balance sheet at what value on July 31?
There is no need for any adjustment as per the LCM rule. The ending inventory would be reported at $390 on the balance sheet.
LCM rule in inventory valuation is an implication of the principle of conservatism. As per this rule, the inventories should be valued at a lower value only be it the cost at which it was acquired or the current market cost (replacement cost). If there is any difference between the market price and historic cost, an adjustment needs to be made in the balance sheet value of inventory.
At July 31,the book value (cost) of ending inventory = $390
On July 31, the replacement cost (market value) of inventory = $435
As per the LCM rule, the replacement cost is higher than the historical cost. Thus the ending inventory would be reported at its historical cost only.
There is no need for any adjustment in the balance sheet value of inventory.
Merchandise on July 31 would be reported on the balance sheet at a value of $390.
Question: Boston Cycles started October with 12 bicycles that cost $42 each. On October 16, Boston bought 40 bicycles at $68 each. On October 31, Boston sold 34 bicycles for$100 each.
Preparing a perpetual inventory record and journal entries—FIFO
1. Prepare Boston Cycle’s perpetual inventory record assuming the company uses theFIFO inventory costing method.
Question: This problem continues the Canyon Canoe Company situation from Chapter 5. At the beginning of the January 2019, Canyon Canoe Company decided to carry and sellT-shirts with its logo printed on them. Canyon Canoe Company uses the perpetualinventory system to account for the inventory. During February 2019, Canyon CanoeCompany completed the following merchandising transactions:
Feb. 2 Sold 60 T-shirts at $10 each.
5 Purchased 50 T-shirts at $6 each.
7 Sold 45 T-shirts for $10 each.
8 Sold 20 T-shirts for $10 each.
10 Canyon Canoe Company realized the inventory was running
low, so it placed a rush order and purchased 20 T-shirts. The
premium cost for these shirts was $7 each.
12 Placed a second rush order and purchased 40 T-shirts at $7
13 Sold 20 T-shirts for $10 each.
15 Purchased 50 T-shirts for $6 each.
20 In order to avoid future rush orders, purchased 150 T-shirts.
Due to the volume of the order, Canyon Canoe Company
was able to negotiate a cost of $5 each.
21 Sold 40 T-shirts for $10 each.
22 Sold 35 T-shirts for $10 each.
24 Sold 20 T-shirts for $10 each.
25 Sold 45 T-shirts for $10 each.
27 Sold 40 T-shirts for $10 each.
1. Assume Canton Canoe Company began February with 94 T-shirts in inventorythat cost $5 each. Prepare the perpetual inventory records for February using theFIFO inventory costing method.
Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of $4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:
Jan. 5 Purchase 156 crates @ $ 64 each
13 Sale 180 crates @ $ 100 each
18 Purchase 114 crates @ $ 75 each
26 Sale 150 crates @ $ 116 each
2. Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit.
Steel It began January with 55 units of iron inventory that cost $35 each. During January, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Jan. 3 Sale 45 $ 83
8 Purchase 75 $ 52
21 Sale 70 85
30 Purchase 10 55
4. Determine the company’s cost of goods sold for January using FIFO, LIFO, andweighted-average inventory costing methods.
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