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The A&J Company uses the Lower of Cost or Net Realizable Value method to value its inventory. At the end of 2016 A&J had a balance of $42,000 in the “Allowance to Reduce Inventory to NRV” account.

Inventory Cost and NRV data for December 31, 2017, 2018 and 2019 is shown below:

Cost LCNRV

2017 $822,000 $760,000

2018 $829,000 $789,000

2019 $935,000 $885,000

Required:

1)Prepare journal entries for December 31, 2017, December 31, 2018 and December 31, 2019 assuming the inventory is recorded at LCNRV and a perpetual inventory system is used. Assume the loss method with an allowance is used.

2)Prepare journal entries for December 31, 2017, December 31, 2018 and December 31, 2019 assuming the inventory is recorded at LCNRV and a perpetual inventory system is used. Assume the cost of goods method with an allowance is used.

3)What is the net inventory value that would appear on the balance sheet for both methods at the end of 2019?

Question # 2

The M&E Company had a fire that destroyed most of its inventory and would like to put in a claim with its insurance company. Records indicate the following:

Inventory (beg of year): $160,000 Sales revenue: $880,000

Purchases: $580,000 Sales returns: $ 42,000

Purchase returns: $ 56,000 Freight in: $ 5,000

Gross profit based on selling price: 40%

Merchandise inventory at cost totaled $12,000 and merchandise inventory with a selling price of $40,000 (hint, must convert to cost) remained undamaged.

Required:

Calculate the amount of inventory loss that M&E can claim.

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Bunny Greenfelder
Bunny GreenfelderLv2
29 Sep 2019

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Dover Company began operations in 2017 and determined ending inventory and LCNRV on December 31, 2017, and December 31, 2018. This information is presented below:

                 Cost         NRV

12/31/17 $346,000   $322,000

12/21/18  $410,000  $390,000

a.) entries for 12/31/17 and 12/31/18 assuming that inventory is recorded at LCNRV and a perpetual inv system using cot of goods sold method
b.) entries for 12/31/17 and 12/31/18 assuming LCNRV and a perpetual system using the loss method
c.) which of the two methods provides a higher net income each year?

On December 31, 2017, Wildhorse Co. sold equipment to Windsor, Inc. Wildhorse Co. agreed to accept a $630,000 zero-interest-bearing note due December 31, 2019, as payment in full. Windsor, Inc. incorporated in 2017 and had very little credit history at the time of the transaction with Wildhorse. Therefore, at that time, Windsor typically borrowed funds at a rate of 10%. Wildhorse has a long and positive credit history. Therefore, Wildhorse has various lines of credit at 4%.

1.) Prepare the journal entry to record the transaction of December 31, 2017, for Wildhorse Co.

2.) Assuming Wildhorse Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2018.

3.) Assuming Wildhorse Co.’s fiscal-year end is December 31, prepare the journal entries for December 31, 2019.

Shamrock Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2017. Jim Alcide, controller for Shamrock, has gathered the following data concerning inventory.

At May 31, 2017, the balance in Shamrock’s Raw Materials Inventory account was $456,960, and Allowance to Reduce Inventory to NRV had a credit balance of $27,660. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Shamrock’s May 31, 2017, financial statements for inventory under the LCNRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle.

Cost Sales Price Net Realizable Value

Aluminum siding $78,400 $71,680 $62,720

Cedar shake siding 96,320 105,280 94,976

Louvered glass doors 125,440 208,768 188,496

Thermal windows 156,800 173,376 156,800

Total $456,960 $559,104 $502,992

Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017. Balance in the Allowance to Reduce Inventory to NRV $______________

For the fiscal year ended May 31, 2017, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to NRV. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) The amount of the gain (loss) $__________________

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