E9-3

Note:
Net Realizable Value
estimasi harga jual-biaya yang diprediksikan
estimasi profit

Lower of cost or market (LCM)

kita beli inventory, tapi harga tsb berubah
Harga dulu: historical price
Historical price itu bakal ditinggalin
Cara mencari Lower of Cost Market (LCM):
Unit cost dibandingkan dengan Designated Market Value
Pilih harga yang paling kecil diantara unit cost & desginated market value

Designated Market Value

ga boleh lebih kecil dari (NRV - normal profit)
Makanya, sebelum cari designated market value,
cari dulu (NRV - normal profit)
Cara mencari Designmated Market Value:
dibandingkan antara NRV, (NRV - normal profit), Replacement Cost

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 E9-3
Estimated Cost of Completion
Item No. Unit Cost NRV (ceiling) Normal Profit
Selling Price and Disposal
1320 $ 3.20 4.5 0.35 4,5-0,35 1.25
4.15
1333 $ 2.70 3.4 0.5 3,4-0,5 0.5
2.9
1426 $ 4.50 5 0.4 5-0,4 1
4.6
1437 $ 3.60 3.2 0.45 3,2-0,45 0.9
2.75
1510 $ 2.25 3.25 0.8 3,25-0,8 0.6
2.45
1522 $ 3.00 3.9 0.4 3,9-0,4 0.5
3.5
1573 $ 1.80 2.5 0.75 2,5-0,75 0.5
1.75
1626 $ 4.70 6 0.5 6-0,5 1
5.5
$ 25.75

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Cost to Designated Final Inventory
NRV - Normal Profit (floor) LCM Quantity
Replace Market Value Value
4,15-1,25 3 (2,9; 3,0; 4,15) (3,0 < 3,2) 1200 1200*$3
2.9 $ 3.00 $ 3.00 $ 3,600
2,9-0,5 2.3 ( 2,3; 2,4; 2,9) (2,4 < 2,9) 900 900*$2,4
2.4 $ 2.40 $ 2.40 $ 2,160
5-0,4-1 3.7 (3,6; 3,7; 4,6) (3,7 < 4,5) 800 800*$3,7
3.6 $ 3.70 $ 3.70 $ 2,960
3,2-0,45-0,9 3.1 (1,85; 2,75; 3,1) (2,75 < 3,6) 1000 1000*$2,75
1.85 $ 2.75 $ 2.75 $ 2,750
3,25-0,8-0,6 2 (1,85; 2,0; 2,45) (2 < 2,25) 700 700*$2
1.85 $ 2.00 $ 2.00 $ 1,400
3,9-0,4-0,5 2.7 (2,7; 3,0; 3,5) (3 = 3) 500 500*$3
3 $ 3.00 $ 3.00 $ 1,500.00
2,5-0,75-0,5 1.6 (1,25; 1,6; 1,75) (1,6 < 1,8) 3000 3000*$1,6
1.25 $ 1.60 $ 1.60 $ 4,800
6-0,5-1 5.2 (4,5; 5,2; 5,5) (4,7 < 5,2) 1000 1000*$4,7
4.5 $ 5.20 $ 4.70 $ 4,700
$ 23,870

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E9-4

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Date Cost Lower-of-Cost-or Market
12/31/10 $ 346,000 $ 322,000

Date Cost Lower-of-Cost-or Market

12/31/11 410000 390000

Lower-of-Cost-or Market Journal Entries

a.
12/31/10 COGS $ 346,000 Metode cost
Inventory $ 346,000

12/31/11 COGS $ 410,000 Metode cost

Inventory $ 410,000

b.
12/31/10 Loss Due to Decline
of Inventory to Market
(346000-322000)
Allowance to Reduce
Inventory to Market
(Loss Method)
Note:
24000 Ending invenory menurun
seakan kita pakai inventory
lebih banyak untuk penjualan yang sama
24000 Jadi, net income menurun

12/31/11 Allowance to Reduce 4000

Inventory to Market
(24000-20000)
Recovery of Loss 4000
Due to Market
Decline to Inventory

c. Both method have some effect on net income

Metode Cost:
Revenue - COGS - Expenses = Net Income
Jadi, kalau misalkan harga market sekarang tinggi, artinya net income kita naik
Maka dari itu, metode cost mengakibatkan efek ke net income

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Amount Required in Valuation Account Adjustment of Valuation Account Balance
(346000-322000)
$24000 increase
$ 24,000.00

Amount Required in Valuation Account Adjustment of Valuation Account Balance

(410000-390000) (24000-20000)
$ 20,000.00 $ 4,000
$4000 decrease
Recovery of previously recognized loss
(24000-20000)
$ 4,000

penjualan yang sama

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 E9-4
Effect on Net Income
Decrease

Effect on Net Income

Increase

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 E9-5
a.

Allowance adalah account tersendiri buat tanggung kerugian

Jadi, contra account

b.

Jan. 31

Feb. 28

Mar. 31

Apr. 30

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 E9-5
Monthly income statements in column form for Feb, March, April:
February March April
Sales $ 29,000 $ 35,000 $ 40,000
Cost of Goods Sold
Inventory, beginning 15000 15100 17000
Purchases 17000 24000 26500
Cost of Goods Available 32000 39100 43500
Inventory, ending 15100 17000 14000
Cost of Goods Sold 16900 22100 29500
Gross Profit $ 12,100 $ 12,900 $ 10,500
**Gain (loss) due to market
fluctuations of inventory -2000 1100 700
$ 10,100 $ 14,000 $ 11,200

Jan. 31 Feb. 28 Mar. 31 Apr. 30

Inventory at cost $ 15,000 $ 15,100 $ 17,000 $ 14,000
Inventory at the lower-cost
of-the-market 14500 12600 15600 13300
Allowance amount to
reduce inventory market $ 500 $ 2,500 $ 1,400 $ 700

**Gain (loss) due to market $(500-0) $ (500-2500) $ (2500-1400) $ (1400-700)

fluctuations of inventory $ 500 $ 2,000 $ 1,100 $ 700
(Loss) (Loss) (Gain) (Gain)

Journal entries required: Kalau gain, debit nya di Allowance

Kalau loss, debit nya loss due to decline inventory

Loss Due to Decline 500

of Inventory to Market
($ 15000-$14500)
Allowance to Reduce 500
Inventory to Market

Loss Due to Decline 2000

of Inventory to Market
($ 500-$2500)
Allowance to Reduce 2000
Inventory to Market

Allowance to Reduce 1100

Inventory to Market
$ (2500-1400)
Recovery of Loss Due to 1100
Market Decline of Inventory

Allowance to Reduce 1100

Inventory to Market
$ (1400-700)
Recovery of Loss Due to 1100
Market Decline of Inventory

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 E9-8

A lump sump = Total Cost

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 E9-8
Type No. of Chairs Sales price per chair Total sales price Relative sales price
Lounge chairs 400 $ 90 (400*$90)
$ 36,000

Armchairs 300 $ 80 (300*$80)

$ 24,000

Straight chairs 800 $ 50 (800*$50)

$ 40,000
$ 100,000

** Sisa nilai = (biaya-depresiasi) = a lump sump = $60000

Type No. of Chairs Sold Cost per chair Cost of Chairs Sold
Lounge chairs 200 $ 54 (200*54)
$ 10,800

Armchairs 100 $ 48 (100*48)

$ 4,800

Straight chairs 120 $ 30 (120*30)

$ 3,600

Inventory of unsold straight chairs on Dec 31, 2011:

(800-120)*$30
$ 20,400

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 E9-8
Relative sales price A lump sump Cost allocated to chair Cost per chair
(36000/100000) $ 60,000 (0,36*$60000) (21600/400)
0.36 $ 21,600 $ 54

(24000/100000) $ 60,000 (0,24*$60000) (14400/300)

0.24 $ 14,400 $ 48

(40000/100000) $ 60,000 (0,40*$60000) (24000/800)

0.4 $ 24,000 $ 30
$ 60,000

Sales Gross Profit

$ 18,000 (18000-10800)
$ 7,200

$ 8,000 (8000-4800)
$ 3,200

$ 6,000 (6000-3600)
$ 2,400
$ 12,800

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 E9-12
a.

Purhases (at cost) 640000

Purhase discounts -12000
Freight-in 30000
658000
b.
25%*Cost=Gross Profit
25%*818000
204500

25%*Cost=Gross Profit

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 E9-12
Estimated inventory at May 31 (gross profit is 25% of sales):
Inventory, May 1 (at cost) $ 160,000
Purhases (at cost) 640000
Purhase discounts -12000
Freight-in 30000
Goods available (at cost) $ 818,000
Sales (at selling price) $ 1,000,000
(Less): Sales returns (at selling price) 70000
Net sales $ 930,000
(Less): Gross profit (25%*930000) 232500
Sales (at cost) $ 697,500
Approximately inventory,
May 31 (at cost) $ 120,500

Gross profit as a percent of sales must be computed:

Gross profit on selling price:

(Gross profit on selling price)/(100%+Percentage Markup on Cost)
(25%)/(100%+25%)
0.2
20%

Estimated inventory at May 31 (gross profit is 25% of cost):

Inventory, May 1 (at cost) $ 160,000
Purhases (at cost) 640000
Purhase discounts -12000
Freight-in 30000
Goods available (at cost) $ 818,000
Sales (at selling price) $ 1,000,000
Sales returns (at selling price) 70000
Net sales $ 930,000
(Less): Gross profit (20%*930000) 186000
Sales (at cost) $ 744,000
Approximately inventory,
May 31 (at cost) $ 74,000

Estimated inventory at May 31 (gross profit is 25% of cost):

Inventory, May 1 (at cost) $ 160,000
Purhases (at cost) 640000
Purhase discounts -12000
Freight-in 30000
Goods available (at cost) $ 818,000
Sales (at selling price) $ 1,000,000
Sales returns (at selling price) 70000
Net sales $ 930,000
(Less): Gross profit (25%*818000) 204500
Sales (at cost) $ 725,500
Approximately inventory,
May 31 (at cost) $ 92,500

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E9-12

Page 15
 E9-15
Compute the claim against the insura

Inventory, July 1 (at cost)

Purhases (at cost)
Goods available (at cost)
Sales (at selling price)
(Less): Sales returns (at selling price)
Net sales
(Less): Gross profit
Net sales (at cost)
Estimated inventory(at cost)
(Less): Goods in hand (30500-6000)
theft: Claim against insurance company

Gross profit on selling price:

(Gross profit on selling price)/(100%+Percentage Markup on Cost)
(25%)/(100%+25%)
0.2
20% of selling price

Inventory, July 1 (at cost)

Purhases (at cost)
Goods available (at cost)
Sales (at selling price)
(Less): Sales returns (at selling price)
Net sales
(Less): Gross profit
Net sales (at cost)
Estimated inventory(at cost)
(Less): Goods in hand (30500-6000)
Claim against insurance company

Page 16
 E9-15
Compute the claim against the insurance company:

nventory, July 1 (at cost) $ 38,000

Purhases (at cost) 90000
Goods available (at cost) $ 128,000
Sales (at selling price) $ 116,000
Less): Sales returns (at selling price) 4000
$ 112,000
Less): Gross profit (20%*112000) 22400
Net sales (at cost) $ 89,600
Estimated inventory(at cost) $ 38,400
Less): Goods in hand (30500-6000) $ 24,500
Claim against insurance company $ 13,900

nventory, July 1 (at cost) $ 38,000

Purhases (at cost) 90000
Goods available (at cost) $ 128,000
Sales (at selling price) $ 116,000
Less): Sales returns (at selling price) 4000
$ 112,000
Less): Gross profit (125%*128000) 160000
Net sales (at cost) $ (48,000)
Estimated inventory(at cost) $ 176,000
Less): Goods in hand (30500-6000) $ 24,500
Claim against insurance company $ 151,500

Page 17
E9-18

Page 18
 E9-18
a. The ending inventory at retail
Cost Retail
Beginning inventory $ 58,000 $ 100,000
Purchases (net) $ 122,000 $ 200,000
Net markups $ 20,000
Totals $ 180,000 $ 320,000
Net markdowns $ (30,000)
Sales price of goods available $ 290,000
Deduct: Sales revenue $ (186,000)
Ending inventory at retail $ 104,000

b. Cost-to-retail percentage:
1. Excluding both markups & markdowns:
(Cost price/Retail price)
(180000/(320000-20000))
0.6
60%

2. Excluding markups, but including markdowns:

(Cost price/Retail price)
(180000/(300000-30000))
0.6667
66.67%

3. Excluding markdowns, but including markups:

(Cost price/Retail price)
(180000/(300000+20000))
0.5625
56.25%

4. Including both markdowns & markups:

(Cost price/Retail price)
(180000/(300000+20000-30000))
0.62069
62.07%

c.
1. Method 3
2. Method 3
3. Method 3

d. Compute ending inventory at lower-of-cost-or-market (round to nearest dollar)

Ending inventory at retail*Cost ratio=Value of ending inventory
56,25%*$104000
$ 58,500

e. Compute COGS based on d !

$180000-$58500
$ 121,500

f. Compute gross margin based on d !

Sales-COGS=Gross margin

Page 19
 E9-18
$186000-$121500
$ 58,500

Page 20
 E9-20

Note:
Cost = at cost
Retail = at selling price
Sales price of goods available $ 280,000
Deduct: Sales $ (186,000)
Ending inventory at retail $ 94,000
Net markdowns $ 8,500

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Compute the ending inventory by the conventional retail inventory method!
Cost Retail
Beginning inventory $ 30,000 $ 46,500
Purchases $ 55,000 $ 88,000
Purchase returns $ (2,000) $ (3,000)
Freight on purchases $ 2,400
Totals $ 85,400 $ 131,500
Add: Net markups
Markups $ 10,000
Markups cancellation $ (1,500)
Net markups $ 8,500
Totals $ 85,400 $ 140,000

Deduct: Net markdowns

Markdowns $ 9,300
Markdowns cancellation $ (2,800)
Net markdowns $ 6,500
Sales price of goods available $ 133,500
Deduct: Net sales
Sales $ 95,000
Sales returns $ (2,000)
Net sales $ 93,000
Ending inventory, at retail $ 40,500

Cost-to-retail ratio:
(85400/140000)
0.61
61%

Ending inventor at cost:

Ending inventory at retail*Cost ratio=Value of ending inventory
61%*$40500
$ 24,705

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 E9-23

Notes
theft: pencurian

increment/rise: kenaikan

Page 23
 E9-23
Compute the cost of the 2011 ending inventory
(a) conventional retail method & (b) LIFO retail method

a. Conventional retail method

Cost Retail
Beginning inventory $ 14,000 $ 20,000
Purchases (Net) $ 55,500 $ 81,000
Freight in $ 7,500
Net markups $ 9,000
Totals $ 77,000 $ 110,000
Net markdowns $ (2,500)
Sales price of goods available $ 107,500
Deduct: Sales $ (75,000)
Estimated theft $ (2,000)
Ending inventory at retail $ 30,500

Cost-to-retail ratio:
(77000/110000)
0.7
70%

Ending inventor at cost:

Ending inventory at retail*Cost ratio=Value of ending inventory
70%*$30500
$ 21,350

b. The increment in retail: The increment in cost:

(Ending inventory-Beginning inventory) 70%*10500
(30500-20000) 7350
10500

LIFO retail method:

Cost Retail
Beginning inventory $ 14,000 $ 20,000
Increment $ 7,350 10500
Ending inventory $ 21,350 $ 30,500

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 E9-23

The increment in cost:

Page 25
 P9-5

3.

4.
4.

2.

Page 26
 P9-5
Note:
acknowledged indebtedness: pengakuan hutang
salvage: diselamatkan

Page 27
 P9-5
Stanislaw Corporation
Computation of Inventory Fire Loss
April 15, 2011

Inventory, Jan. 1, 2011 $ 75,000

Purchases, Jan. 1, 2011-Mar. 31, 2011 52000
April Merchandise shipment paid 3400
Unrecorded purchases on account 15600
Total $ 146,000
Less: Shipments in transit $ 2,300
Merchandise returned 950 $ 3,250
Merchandise available for sale $ 142,750
Less: Estimated cost of sales
Sales, Jan. 1, 2011-Mar. 31, 2011 $ 135,000
Sales, Apr. 1, 2011-Apr. 15, 2011
Receivable acknowledgement
at Apr. 15, 2011 $ 46,000
Estimated receivable not
acknowledge 8000
Total $ 54,000
Add collections,
Apr. 1, 2011-Apr. 15, 2011
(12950-950) 12000
Total $ 66,000
Less: Receivable, Mar. 31, 2011 40000 $ 26,000
Total sales,
Apr. 1, 2011-Apr. 15, 2011 $ 161,000
Less: Gross profit
(45%*161000) 72450 $ 88,550
Estimated merchandise inventory $ 54,200
Less: Sale of salvaged inventory 3500
Inventory fire loss $ 50,700

Gross profit ratio computation:

Net sales 2009 $ 390,000

Net sales 2010 530000
Total net sales $ 920,000

Beginning inventory $ 66,000

Net purchases 2009 $ 235,000
Net purchases 2010 280000
Total inventory $ 581,000
Less: Ending inventory $ 75,000 $ 506,000
Gross profit $ 414,000

Gross profit ratio

(414000/920000)
0.45
45%

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 P9-8

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 P9-8
a. Conventional retail method
Cost Retail
Beginning inventory $ 52,000 $ 78,000
Purchases $ 272,000 $ 423,000
Freight in $ 16,600
Purchase returns $ (5,600) $ (8,000)
Totals $ 335,000 $ 493,000
Markups $ 9,000
Markups cancellation $ (2,000) $ 7,000
$ 500,000
Net markdowns $ (3,600)
Normal spoilage & breakage $ (10,000)
Deduct: Sales $ (390,000)
Ending inventory at retail $ 96,400

Cost-to-retail ratio:
(335000/493000)
0.679513185
67%

Ending inventor at cost:

Ending inventory at retail*Cost ratio=Value of ending inventory
67%*$96400
$ 64,588

b.
1. theft losses
2. spoilage or breakage above normal
3. A variety of merchandise with varying cost/retail ratio
4. Markups on goods available for sale inconsistent

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P9-11

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 P9-11
Cost Retail
Beginning inventory $ 30,000 $ 43,000
Purchases $ 104,800 $ 155,000
Purchase returns $ (2,800) $ (4,000)
Totals $ 132,000 $ 194,000
Add: Net markups
Markups $ 9,200
Markups cancellation $ (3,200)
Net markups $ 6,000
Totals $ 132,000 $ 200,000

Deduct: Net markdowns

Markdowns $ 10,500
Markdowns cancellation $ (6,500)
Net markdowns $ 4,000
Sales price of goods available $ 196,000
Deduct: Net sales
Sales $ 154,000
Sales returns $ (8,000)
Net sales $ 146,000
Ending inventory, at retail $ 50,000

Cost-to-retail ratio:
(132000/200000)
0.66
66%

Ending inventor at cost:

Ending inventory at retail*Cost ratio=Value of ending inventory
66%*$50000
33000

b.
Ending inventory at retail (59400/1,08) $ 55,000
Less: Beginning inventory at retail $ 43,000
Inventory increment at retail, Jan 1 $ 12,000
Inventory increment at retail, June 30
(12000*1,08) 12960

Beginning inventory at cost $ 30,000

Inventory increment at retail, June 30
(12960*70%) 9072
Ending inventory at dollar LIFO cost $ 39,072

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a. Sell relatively many different itemat low cost unit and large volume of goods

b.
Cost Retail
Beginning inventory $ 68,000 $ 100,000
Purchases $ 255,000 $ 400,000
Net markups $ 50,000
Net markdowns $ (110,000)
Net purchases $ 255,000 $ 340,000
Goods available $ 440,000
Sales $ (320,000)
Ending inventory, at retail $ 120,000

Cost-to-retail ratio:
(255000/340000)
0.75
75%

Cost Retail
Beginning inventory layer $ 68,000 $ 100,000
Incremental increase
At retail (120000-100000) 20000
At cost (20000*75%) 15000
Ending inventory, at LIFO cost $ 83,000 $ 120,000

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