ACC 305 Lecture Notes - Lecture 74: Historical Cost, Financial Statement, Income Statement
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Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2018 year-end inventory is as follows:
Inventory, by Product Category | Quantity | Per Unit Cost | Net Realizable Value | ||||||||
Tools: | |||||||||||
Hammers | 100 | $ | 4.50 | $ | 5.00 | ||||||
Saws | 150 | 9.50 | 8.50 | ||||||||
Screwdrivers | 250 | 1.50 | 2.10 | ||||||||
Paint products: | |||||||||||
1-gallon cans | 450 | 5.50 | 4.50 | ||||||||
Paint brushes | 100 | 3.50 | 4.00 | ||||||||
Required:
1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory.
2. Assuming that the company reports an inventory write-down as a line item in the income statement, for each of the LCNRV applications determine the amount of the loss.
The following independent situations occurred at the end of Year 2 and require an inventory report in the year-end financial statements. The dollar amounts provided in the table below are on a per-unit basis. In Situation 5., assume that the company is applying IFRS.
Situation | Historical cost | Estimated selling price | Cost of completion | Cost of disposal | Current replacement cost | Normal profit margin |
1. | $60 | $70 | -- | $5 | $55 | $7 |
2. | $50 | $80 | $20 | $6 | $53 | $3 |
3. | $45 | $44 | $3 | $2 | $40 | $4 |
4. | $29 | $40 | $4 | $6 | $28 | $5 |
5. | $100 | $110 | $15 | $5 | $82 | $5 |
Select from the option list provided the appropriate measurement attributes for reporting inventory in the year-end financial statements. Each choice may be used once, more than once, or not at all.
Situation | Answer |
1. The company accounts for its inventory using the LIFO method. | |
2. The company accounts for its inventory using the average-cost method. | |
3. The company accounts for its inventory using the FIFO method. | |
4. The company accounts for its inventory using the LIFO method. | |
5. (Under IFRS) Answer Choices: ( Historical Cost, Net Realizable Value, Net Realizable Value minus Normal Profit Margin, Current Replacement Cost) |