1460T_c09.qxd01:09:200609:04 AM Page451 EQA Brief Exercises·451 6.What method(s)might be used in the accounts to record 14.What conditions must exist for the retail inventory a loss due to a price decline in the inventories?Discuss. method to provide valid results? 7.What factors might call for inventory valuation at sales 15.The conventional retail inventory method yields results prices(net realizable value or market price)? that are essentially the same as those yielded by the lower- 8.Under what circumstances is relative sales value an of-cost-or-market method.Explain.Prepare an illustration appropriate basis for determining the price assigned to of how the retail inventory method reduces inventory to inventory? market. 9.At December 31,2008,Kidman Co.has outstanding pur- 16.(a)Determine the ending inventory under the conven- chase commitments for purchase of 150,000 gallons,at tional retail method for the furniture department of $6.40 per gallon,of a raw material to be used in its man- Gin Blossoms Department Stores from the following ufacturing process.The company prices its raw material data. inventory at cost or market,whichever is lower.Assum- ing that the market price as of December 31,2008,is $5.90, Cost Retail how would you treat this situation in the accounts? Inventory,Jan.1 $149,000 $283,500 10.What are the major uses of the gross profit method? Purchases 1,400,000 2,160,000 Freight-in 70,000 11.Distinguish between gross profit as a percentage of cost and Markups,net 92.000 gross profit as a percentage of sales price.Convert the fol- Markdowns,net 48.000 Sales 2,235,000 lowing gross profit percentages based on cost to gross profit percentages based on sales price:20%and 33%%.Convert (b)If the results of a physical inventory indicated an the following gross profit percentages based on sales price inventory at retail of $240,000,what inferences would to gross profit percentages based on cost:33%%and 60%. you draw? 12.Carole Lombard Co.with annual net sales of $6 million maintains a markup of 25%based on cost.Lombard's 17.Deere and Company reported inventory in its balance expenses average 15%of net sales.What is Lombard's sheet as follows: gross profit and net profit in dollars? Inventories $1,999,100,000 13.Afire destroys all of the merchandise of Rosanna Arquette What additional disclosures might be necessary to pre- Company on February 10,2008.Presented below is in- sent the inventory fairly? formation compiled up to the date of the fire. 18.Of what significance is inventory turnover to a retail Inventory,January 1,2008 $400.000 store? Sales to February 10,2008 1,750,000 Purchases to February 10,2008 1,140,000 *19.What modifications to the conventional retail method are Freight-in to February 10,2008 60.000 necessary to approximate a LIFO retail flow? Rate of gross profit on selling price 40% What is the approximate inventory on February 10,2008? BRIEF EXERCISES PLUS (L01, BE9-1 Presented below is information related to Alstott Inc.'s inventory. 2) (per unit) Skis Boots Parkas Historical cost $190.00 $106.00 $53.00 Selling price 217.00 145.00 73.75 Cost to distribute 19.00 8.00 2.50 Current replacement cost 203.00 105.00 51.00 Normal profit margin 32.00 29.00 21.25 Determine the following:(a)the two limits to market value (i.e.,the ceiling and the floor)that should be used in the lower-of-cost-or-market computation for skis;(b)the cost amount that should be used in the lower-of-cost-or-market comparison of boots;and (c)the market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.Brief Exercises • 451 6. What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss. 7. What factors might call for inventory valuation at sales prices (net realizable value or market price)? 8. Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory? 9. At December 31, 2008, Kidman Co. has outstanding pur￾chase commitments for purchase of 150,000 gallons, at $6.40 per gallon, of a raw material to be used in its man￾ufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assum￾ing that the market price as of December 31, 2008, is $5.90, how would you treat this situation in the accounts? 10. What are the major uses of the gross profit method? 11. Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the fol￾lowing gross profit percentages based on cost to gross profit percentages based on sales price: 20% and 331 ⁄3%. Convert the following gross profit percentages based on sales price to gross profit percentages based on cost: 331 ⁄3% and 60%. 12. Carole Lombard Co. with annual net sales of $6 million maintains a markup of 25% based on cost. Lombard’s expenses average 15% of net sales. What is Lombard’s gross profit and net profit in dollars? 13. Afire destroys all of the merchandise of Rosanna Arquette Company on February 10, 2008. Presented below is in￾formation compiled up to the date of the fire. Inventory, January 1, 2008 $ 400,000 Sales to February 10, 2008 1,750,000 Purchases to February 10, 2008 1,140,000 Freight-in to February 10, 2008 60,000 Rate of gross profit on selling price 40% What is the approximate inventory on February 10, 2008? 14. What conditions must exist for the retail inventory method to provide valid results? 15. The conventional retail inventory method yields results that are essentially the same as those yielded by the lower￾of-cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market. 16. (a) Determine the ending inventory under the conven￾tional retail method for the furniture department of Gin Blossoms Department Stores from the following data. Cost Retail Inventory, Jan. 1 $ 149,000 $ 283,500 Purchases 1,400,000 2,160,000 Freight-in 70,000 Markups, net 92,000 Markdowns, net 48,000 Sales 2,235,000 (b) If the results of a physical inventory indicated an inventory at retail of $240,000, what inferences would you draw? 17. Deere and Company reported inventory in its balance sheet as follows: Inventories $1,999,100,000 What additional disclosures might be necessary to pre￾sent the inventory fairly? 18. Of what significance is inventory turnover to a retail store? *19. What modifications to the conventional retail method are necessary to approximate a LIFO retail flow? BRIEF EXERCISES BE9-1 Presented below is information related to Alstott Inc.’s inventory. (per unit) Skis Boots Parkas Historical cost $190.00 $106.00 $53.00 Selling price 217.00 145.00 73.75 Cost to distribute 19.00 8.00 2.50 Current replacement cost 203.00 105.00 51.00 Normal profit margin 32.00 29.00 21.25 Determine the following: (a) the two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis; (b) the cost amount that should be used in the lower-of-cost-or-market comparison of boots; and (c) the market amount that should be used to value parkas on the basis of the lower-of-cost-or-market. (L0 1, 2) 1460T_c09.qxd 01:09:2006 09:04 AM Page 451