(Download PDF) Intermediate Accounting Reporting and Analysis 3rd Edition Wahlen Solutions Manual Full Chapter

Intermediate Accounting Reporting and
Analysis 3rd Edition Wahlen Solutions

Manual
Go to download the full and correct content document:
https://testbankfan.com/product/intermediate-accounting-reporting-and-analysis-3rd-e
dition-wahlen-solutions-manual/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
Intermediate Accounting Reporting and Analysis 3rd

Edition Wahlen Test Bank
https://testbankfan.com/product/intermediate-accounting-
reporting-and-analysis-3rd-edition-wahlen-test-bank/
Intermediate Accounting Reporting and Analysis 2nd

Edition Wahlen Solutions Manual
reporting-and-analysis-2nd-edition-wahlen-solutions-manual/
Intermediate Accounting Reporting and Analysis 1st

Edition Wahlen Solutions Manual
reporting-and-analysis-1st-edition-wahlen-solutions-manual/
Intermediate Accounting Reporting and Analysis 1st

reporting-and-analysis-1st-edition-wahlen-test-bank/
Intermediate Accounting Reporting and Analysis 2nd
reporting-and-analysis-2nd-edition-wahlen-test-bank/
Intermediate Accounting Reporting And Analysis 2017

Update 2nd Edition Wahlen Test Bank
reporting-and-analysis-2017-update-2nd-edition-wahlen-test-bank/
Financial Reporting Financial Statement Analysis and

Valuation 9th Edition Wahlen Solutions Manual
https://testbankfan.com/product/financial-reporting-financial-
statement-analysis-and-valuation-9th-edition-wahlen-solutions-
manual/

Valuation 8th Edition Wahlen Solutions Manual
statement-analysis-and-valuation-8th-edition-wahlen-solutions-
manual/

Valuation 9th Edition Wahlen Test Bank
statement-analysis-and-valuation-9th-edition-wahlen-test-bank/
CHAPTER 8
Inventories: Special Valuation Problems
CONTENT ANALYSIS OF END-OF-CHAPTER ASSIGNMENTS
TIME
NUMBER TOPIC CONTENT LO ADAPTED DIFFICULTY EST. AACSB AICPA BLOOM’S
8-1 Inventory Below Cost Appropriateness of valuation 1 Easy 5 Analytic Measurement Comprehension
Inventory Below Conceptual measurement Easy 5 Analytic Measurement Comprehension
8-2 Cost justification 1
8-3 Inventory Below Cost Definition of key terms 1 Easy 5 Analytic Measurement Comprehension
8-4 Lower of Cost or Determination of inventory 1 Easy 5 Analytic Measurement Comprehension
Market value; conceptual extension
8-5 Inventory Below Implementation approaches 1 Easy 5 Analytic Measurement Comprehension
8-1
Cost to inventory valuation below
cost
8-6 Inventory Below Direct and indirect Easy 5 Analytic Measurement Comprehension
Cost approaches to record
inventory write-down 1
8-7 Lower of Cost or Criticisms; conceptual 1 Easy 5 Analytic Measurement Comprehension
Market extension
8-8 Inventory Valuation Definitions; IFRS 1 Easy 5 Analytic Measurement Comprehension
Rules
8-9 Inventory Write IFRS compared to U.S. GAAP 1 Easy 5 Analytic Measurement Comprehension
Down
8-10 Cost of Inventory Exceptions to historical cost 2 Easy 5 Analytic Measurement Application
valuation of inventory
8-11 Cost of Inventory Inventory valued above cost 2 Easy 5 Analytic Measurement Application
8-12 Gross Profit Method Situations when inventory 3 Easy 5 Analytic Measurement Application
estimation is needed
© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TIME
8-13 Gross Profit Method Estimate of inventory 3 Easy 5 Analytic Measurement Application
value
Retail Inventory Comparison to gross profit Easy 5 Analytic Measurement Application
8-14 Method method 4
8-15 Retail Inventory When does retail inventory 4 Easy 5 Analytic Measurement Comprehension
Method method provide valid
estimates
8-16 Retail Inventory Define relevant terms 4 Easy 5 Analytic Measurement Comprehension
Method
8-17 Retail Inventory Computation under 4 Easy 5 Analytic Measurement Comprehension
Method various cost flow
assumptions including
FIFO, average cost, LIFO,
and lower of cost or
8-2
market
8-18 Retail Inventory Assumptions for retail 4 Easy 5 Analytic Measurement Comprehension
Method inventory method
8-19 Retail Inventory Retail inventory method; 4 Easy 5 Analytic Measurement Application
Method physical inventory count
8-20 Dollar-Value LIFO When is dollar-value LIFO 5 Easy 5 Analytic Measurement Comprehension
Retail retail method useful and
valid
8-21 Effect of Errors Effect on inventory of 6 Easy 5 Analytic Measurement Application
overstatement and
understatement
M8-1 Lower of Cost or Net Derivation of net 1 AICPA Easy 5 Analytic Measurement Comprehension
Realizable Value realizable value
M8-2 Lower of Cost or Application of lower of 1 AICPA Easy 10 Analytic Measurement Application
Market cost or market rule
M8-3 Lower of Cost or Application of lower of 1 AICPA Easy 10 Analytic Measurement Comprehension
Market cost or market rule
TIME
M8-4 Gross Profit Method Estimate of inventory 3 AICPA Easy 10 Analytic Measurement Application
value
M8-5 Gross Profit Method Estimate of cost of missing 3 AICPA Easy 10 Analytic Measurement Application
inventory
M8-6 Retail Inventory Items included and 4 AICPA Easy 10 Analytic Measurement Comprehension
Method excluded from retail
inventory method
calculation
M8-7 Retail Inventory Items included and 4 AICPA Easy 10 Analytic Measurement Comprehension
Method excluded from retail
inventory method
calculation
M8-8 Retail Inventory Calculation of inventory 4 AICPA Easy 10 Analytic Measurement Application
Method value estimate using the
8-3
retail inventory method
M8-9 Dollar-Value LIFO Changing prices; 5 AICPA Easy 10 Analytic Measurement Comprehension
Retail inventory methods
M8-10 Effect of Errors Effect on inventory of 6 AICPA Easy 10 Analytic Measurement Comprehension
overstatement and
understatement
RE8-1 Inventory Write- Calculation of net 1 Easy 10 Analytic Measurement Comprehension
Down realizable value;
calculation of ceiling and
floor and market value of
inventory
RE8-2 Lower of Cost or Calculation of ceiling and 1 Easy 10 Analytic Measurement Comprehension
Market floor and market value of
inventory
Calculation of net
RE8-3 Lower of Cost or Net realizable value; 1 Easy 10 Analytic Measurement Comprehension
Realizable Value calculation of inventory
value
TIME
RE8-4 Inventory Write- Journal entry to record 1 Easy 10 Analytic Measurement Application
Down write-down of inventory;
perpetual inventory
system; direct method
RE8-5 Inventory Write- Journal entry to record 1 Easy 10 Analytic Measurement Application
Down write-down of inventory;
perpetual inventory
system; allowance method
RE8-6 Gross Profit Method Estimate of cost of ending 3 Easy 10 Analytic Measurement Application
inventory
RE8-7 Retail Inventory Estimate of cost of ending 4 Easy 10 Analytic Measurement Application
Method inventory; FIFO
8-4
Method inventory; average cost
Method inventory; LIFO
Method inventory; lower of
average cost or market
RE8-11 Dollar-Value LIFO Compute the cost of 5 Easy 10 Analytic Measurement Application
Retail ending inventory
RE8-12 Effect of Errors Effect on inventory of 6 Easy 5 Analytic Measurement Application
understatement
RE8-13 Lower of Cost or Net Journal entry to record 7 Easy 10 Analytic Measurement Application
Realizable Value reductions to NRV;
perpetual inventory
system; direct method
TIME
RE8-14 Lower of Cost or Net Journal entry to record 7 Easy 10 Analytic Measurement Application
Realizable Value reductions to NRV;
perpetual inventory
system; allowance method
E8-1 Lower of Cost or Determination of inventory 1 Easy 10 Analytic Measurement Comprehension
NRV value
Market value; next level
NRV value
E8-4 Inventory Write- Inventory value 1 Easy 10 Analytic Measurement Comprehension
Down determination for five
cases; inventory values
under IFRS
8-5
E8-5 Lower of Cost or Individual items, groups of 1 Moderate 10 Analytic Measurement Comprehension
NRV items, entire inventory;
value determination;
conceptual extension; next
level
E8-6 Lower of Cost or Direct and allowance 1 Easy 10 Analytic Measurement Application
NRV methods, perpetual
system; journal entries to
record correct inventory
value; conceptual
extension; next level
E8-7 Gross Profit Method: Determination of inventory 3 Easy 10 Analytic Measurement Application
Estimation of Fire value immediately prior to
Loss fire
E8-8 Gross Profit Method: Determination of estimated 3 AICPA Moderate 10 Analytic Measurement Application
Estimation of Flood loss on inventory from flood;
Loss conceptual extension; next
level
TIME
E8-9 Gross Profit Conversion of gross profit 3 Easy 10 Analytic Measurement Application
Percentage as a percent of sales to
gross profit as a percent of
cost of goods sold
E8-10 Gross Profit Method Computation of inventory 3 Moderate 5 Analytic Measurement Analysis
lost; conceptual extension;
next level
E8-11 Retail Inventory Average cost, FIFO, lower 4 Moderate 20 Analytic Measurement Application
Method of cost or market, LIFO;
computation of ending
inventory
E8-12 Retail Inventory Lower of cost or market; 4 AICPA Easy 15 Analytic Measurement Application
Method computation of ending
inventory
8-6
E8-13 Retail Inventory Average cost, FIFO, lower 4 Moderate 15 Analytic Measurement Analysis
computation of ending
inventory; conceptual
E8-14 Dollar-Value LIFO Determination of the cost 5 Moderate 15 Analytic Measurement Analysis
Retail of inventory for one year
E8-15 Dollar-Value LIFO Determination of the cost 5 Moderate 15 Analytic Measurement Analysis
E8-16 Dollar-Value LIFO Determination of the cost 5 AICPA Easy 15 Analytic Measurement Analysis
E8-17 Errors Impact of misstated 6 Moderate 15 Analytic Measurement Application
purchases and ending
inventory on the income
statement and balance
sheet
TIME
E8-18 Errors Discovery of prior year 6 AICPA Moderate 15 Analytic Measurement Application
inventory valuation error;
determination of correct
net income; next level
E8-19 Lower of Cost or Direct and allowance 7 Easy 15 Analytic Measurement Application
NRV methods, periodic system;
journal entries to record
correct inventory value;
conceptual extension;
next level
P8-1 Inventory Write- Inventory value 1 Moderate 15 Analytic Measurement Application
Down computation; inventory
values under IFRS;
next level
8-7
P8-2 Lower of Cost or Allowance and direct 1 Challenging 15 Analytic Measurement Application
NRV methods; perpetual
system; journal entries;
next level
P8-3 Lower of Cost or Allowance and direct 1 Challenging 20 Analytic Measurement Application
NRV methods; periodic system;
journal entries; financial
statements
P8-4 Gross Profit Method Computation of inventory 3 Moderate 10 Analytic Measurement Analysis
lost from fire; interim
financial reporting;
next level
TIME
P8-5 Gross Profit Method Determination of work-in- 3 AICPA Moderate 15 Analytic Measurement Analysis
process inventory loss in
flood
P8-6 Retail Inventory Average cost, FIFO, lower 4 Challenging 20 Analytic Measurement Analysis
ending inventory value
computation
P8-7 Retail Inventory Average cost, FIFO, lower 4 Challenging 20 Analytic Measurement Analysis
ending inventory value
computation
P8-8 Retail Inventory Lower of average cost or 4 AICPA Moderate 15 Analytic Measurement Analysis
Method market; estimated normal
shrinkage
8-8
P8-9 Retail Inventory Retail inventory method 4,5 Moderate 20 Analytic Measurement Analysis
Method using lower of cost or
market; dollar-value LIFO
retail method;
determination of inventory
value
P8-10 Dollar-Value LIFO Determination of cost of 5 Challenging 30 Analytic Measurement Analysis
Retail ending inventory for three
years
P8-11 Dollar-Value LIFO Computation of cost of 5 Challenging 30 Analytic Measurement Analysis
Retail ending inventory for four
years
P8-12 Dollar-Value LIFO Computation of cost of 5 Challenging 20 Analytic Measurement Analysis
Retail and Fire inventory destroyed by fire
Loss
TIME
P8-13 Errors Impact of errors on 6 Moderate 20 Analytic Measurement Application

inventory and net income
P8-14 Comprehensive: Prepare schedule to 6 AICPA Challenging 20 Analytic Measurement Analysis
Inventory adjust inventory, accounts
Adjustments payable, and net sales for
various items
P8-15 Lower of Cost or Allowance and direct 7 Challenging 10 Analytic Measurement Analysis
NRV methods, periodic system;
journal entries;
conceptual extension
P8-16 Inventory Write- Allowance and direct 7 Challenging 10 Analytic Reporting Analysis
Down methods, periodic system;
journal entries; financial
statements; conceptual
8-9
C8-1 Inventory Write- Consignment sales and 1 AICPA Moderate 20 Analytic Measurement Analysis
Down, Dollar-Value inventory; the use of
LIFO, and dollar-value LIFO to
Consignments estimate consignment
inventory; explanation of
the floor and ceiling limits
in deriving market value
for use in the lower of cost
or market computations
C8-2 Retail Inventory Explain usefulness of retail 4 AICPA Moderate 20 Analytic Measurement Analysis
Method inventory method;
compare and contrast
with other methods
C8-3 Lower of Cost or Estimate inventory for 1 AICPA Moderate 20 Analytic Measurement Analysis
NRV Rule different years; income
statement; balance sheet
TIME
C8-4 Inventory Valuation Lower of cost or NRV; 1 AICPA Moderate 20 Analytic Reporting Analysis
Issues computation of ending
inventory
C8-5 Gross Profit Computation of gross profit 3 AICPA Moderate 20 Analytic Measurement Analysis
ratio; computation of ending
inventory by using the gross
profit ratio method
C8-6 Retail Inventory Retail inventory method; 4 AICPA Moderate 20 Analytic Measurement Synthesis
Method freight costs; FOB shipping
point; FIFO; weighted
average cost method
C8-7 Various Inventory Inventoriable costs; lower of 1,4 AICPA Moderate 20 Analytic Measurement Analysis
Issues cost or market; conventional
C8-8 Various Inventory Inventoriable costs; lower of 1,4 AICPA Moderate 20 Analytic Measurement Analysis
8-10
Issues cost or market; conventional
C8-9 Ethics and Retail Ethics 4 Moderate 20 Analytic Measurement Analysis
Inventory
C8-10 Analyzing Starbucks’ Inventory valuation; inventory Moderate 20 Analytic Reporting Analysis
Inventory classifications; inventory
Disclosures impairments; using real
company annual reports
C8-11 Analyzing Moet Valuation of inventory, LIFO; Moderate 20 Analytic Measurement Analysis
Hennessy Louis inventory write-downs; IFRS;
Vuitton’s (LVMH) using real company annual
Inventory reports
Disclosures
C8-12 Researching GAAP Inventory write-downs; using Moderate 25 Analytic Measurement Application
the FASB Codification System
ANSWERS TO GOT IT?
8-1 A company will value inventory below its cost when the revenue-producing ability of the
asset has declined below its cost. In such a situation, valuation of inventory at historical
cost will overstate the value of inventory and potentially mislead investors and creditors
as to the company’s expected cash inflows.
8-2 By valuing inventory below its cost, a company will report a more relevant and
representationally faithful value for its inventory. In addition, a loss (or expense) is reported
in the income statement in the period in which the inventory’s value declines rather than
in the period in which the goods are sold.
8-3 Cost is the cost incurred to purchase or manufacture the inventory. Net realizable value is
the estimated selling price of the inventory in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. Market value is
defined as the current replacement cost—the cost the company would pay to replace
the inventory.
8-4 The upper constraint (ceiling) on market value is the net realizable value, which is the
estimated selling price less reasonably predictable cost of completion and disposal. The
upper constraint prevents inventory from being overvalued—e.g., valued at an amount
that exceeds the net amount the company could realize by selling it. In addition, the
upper constraint on market value recognizes any losses in the period that the inventory
has a decline in market value. The lower constraint (floor) is the net realizable value less a
normal profit margin. This lower constraint prevents an understatement of inventory and
an overstatement of losses in the current period. This overstatement of losses would lead
to the recognition of excessive profits in future periods when the inventory is sold.
8-5 A company may apply the inventory valuation rules in three ways. It may be applied
to (1) each individual inventory item, (2) each major category of inventory, or (3) the
total inventory.
8-6 A company can record the write-down of inventory using either the direct method or the
allowance method. Under the direct method, the loss is recorded directly by reducing
the company’s inventory account and increasing its cost of goods sold account. Under
the allowance method, the loss is recorded in a separate inventory valuation account
and a loss account.
8-7 The major criticism of the inventory valuation rules are that they are inconsistent,
because losses are recognized from holding the inventory while gains are not. Critics
argue that if the net realizable value (or market value) provides a faithful
representation of the value of inventory when it is below historical cost, it also
provides a faithful representation when it is higher than historical cost. This treatment
is often justified by the conservatism principle.
8-8 In applying the lower of cost or market method to value inventory, IFRS define market
value as net realizable value—the estimated selling price less estimated costs of
completion and disposal. By defining market value in this manner, IFRS do not have
to specify a ceiling and a floor, as required under U.S. GAAP for companies that use
LIFO or the retail inventory method.
8-11
8-9 When inventory is written down, IFRS differ from U.S. GAAP in two major respects:
• For companies that use LIFO or the retail inventory methods, IFRS define market
value as net realizable value (the estimated selling price minus estimated costs of
completion and disposal) and do not consider replacement cost or net realizable
value net of a normal profit margin. Therefore, IFRS eliminate the need to use a
ceiling and a floor in the determination of market value.
• IFRS allow a reversal of a previous write-down which is recognized in income.
Under U.S. GAAP, any such reversals are prohibited.
8-10 One exception to historical cost valuation of inventory is the lower of cost or net
realizable value (or lower of cost or market) rule. It is applied when the revenue-
producing ability of inventory has declined below its original cost. Another exception
is the valuation of inventory at current market value even when it is above cost.
8-11 GAAP allows inventory to be valued above its historical cost when the following three
conditions are met:
1. There is an inability to determine appropriate costs.

2. The inventory is immediately marketable at a quoted market price.
3. The units of inventory are interchangeable.
8-12 The gross profit method of inventory estimation would be useful in the following
situations:
1. At an interim date, the gross profit method is acceptable for estimating inventory
rather than taking a physical count, as long as the method is disclosed.
2. It can be used to check on the reasonableness of the inventory value developed
from a physical inventory or a perpetual inventory system.
3. It can be used to estimate the cost of inventory that has been lost, stolen, or
destroyed; a company can estimate inventory on hand before the loss and be
able to determine the amount of the loss.
4. It can be used to estimate the cost from incomplete inventory records.
5. If a company wishes to prepare budgets for upcoming periods, the gross profit
method can be used to estimate inventories and cost of sales.
8-13 The underlying assumption of the gross profit method is that the rate of gross profit in
the current period is similar to the rate in prior periods. If the costs of inventory or the
selling price have gone up or down in the current period and thus changed the gross
profit rate, the prior percentage should be modified to reflect the change so that a
better estimate of inventory can be made. In addition, a separate rate may be used
for each department of type of product that has a different markup percentage.
Third, an average rate for several past periods may be used to average out period-
to-period fluctuation. Finally, the gross profit rate should be adjusted for any special
situations, such as the reduction of the inventory to market value or a liquidation of
LIFO inventory.
8-12
8-14 The retail inventory method has two main advantages compared to the gross profit
method. First, the retail inventory method produces a more accurate estimate of
current-period ending inventory because it uses a current-period estimate of gross
profit. Second, the retail inventory method is allowed for both interim financial
reporting and income tax purposes.
8-15 To provide valid results for inventory estimation using the retail inventory method,
there should be a consistent pattern between the cost of purchases and selling
prices.
8-16 A markup is the original markup from cost to the original selling price. An additional
markup is an increase above the original selling price. A markup cancellation is a
reduction in the additional markup (the markup cancellation cannot be greater than
the additional markup). A net additional markup is the total additional markups
minus the total markup cancellations. A markdown is a decrease below the original
selling price. A markdown cancellation is an elimination of all or part of a markdown
(the markdown cancellation cannot be greater than the markdown). A net
markdown is the total markdowns minus the total markdown cancellations.
8-17 Under the FIFO cost flow assumption, the beginning inventory is not used in
computing the cost-to-retail ratio for the period. The ratio for the period includes both
net additional markups and markdowns.
For average cost, the cost-to-retail ratio is computed using beginning inventory and
net additional markups and net markdowns. The use of beginning inventory, net
additional markups, and net markdowns tends to average out fluctuations in costs.
The LIFO method calculates a separate ratio for each layer in the beginning
inventory and for current purchases including both net additional markups and net
markdowns. This creates an estimate for the separate layers, which are then handled
the same way as regular LIFO inventory.
The lower of average cost or market method uses the cost and retail value of the
beginning inventory and net additional markups in the computation of the cost-to-
retail ratio. The inclusion of net additional markups but not net markdowns has the
effect of lowering the cost-to-retail ratio and thus lowering the estimated inventory
value below cost (however, not exactly to market).
8-18 For the lower of average cost or market retail inventory method to actually produce
an inventory valuation equal to the lower of cost or net realizable value, one of two
conditions must exist:
1. Markups and markdowns do not exist at the same time; that is, there are either
markups or markdowns, but not both.
2. All marked-down items have been sold in the current period.
8-13
8-19 It should be remembered that the retail inventory method is an estimate of inventory
and thus discrepancies are likely to occur. One cause may be inventory breakage or
theft that would not be reflected in the cost-to-retail ratio, but does affect actual
physical inventory. Another reason for the discrepancy may be that one or more of
the assumptions of the retail inventory method are not true. For example, one such
assumption is that items are homogeneous, or at least remain in relatively the same
proportion in cost of goods available and ending inventory. If this is not true in a
particular period, the retail inventory value will be different than the actual physical
inventory valuation.
8-20 Because the dollar-value LIFO retail method combines the advantages of the retail
method and the dollar-value LIFO method, it derives its usefulness for reasons similar
to these methods. Therefore, the dollar-value LIFO retail method is useful when a
company desires an estimate of ending inventory in a period in which retail prices
are changing.
8-21 O = Overstated; U = Understated; NE = No Effect; CY = Current Year; SY = Succeeding

Year
(a) (b) (c) (d)

CY SY CY SY CY SY CY SY
Net Income: Beginning inventory NE O NE NE NE U NE U
Purchases NE NE U O U O NE NE
Ending inventory O NE NE NE U NE U NE
Cost of goods sold U O U O NE NE O U
Net income O U O U NE NE U O
Earnings per share O U O U NE NE U O
Balance Sheet: Ending inventory O NE NE NE U NE U NE

Accounts payable NE NE U NE U NE NE NE
Retained earnings O NE O NE NE NE U NE
These effects assume that errors are corrected by the end of the following year.
ANSWERS TO MULTIPLE-CHOICE
1. b NRV = $100 – $5 – $10 = $85

2. b NRV minus a normal profit margin = $10.00 – $2.00 – $1.00 = $7.00
3. c
4. b [($900,000 + $3,400,000 + $200,000) – ($4,800,000 × (1 – 0.25)] = $900,000
5. a [($550,000 + $2,250,000) – ($3,000,000 × (1 – 0.30)] = $700,000 – $600,000 = $100,000
6. c
7. b
8. d $140,000 – $1,400 – $110,600 = $28,000 × ($98,000 ÷ $140,000) = $19,600
9. d
10. a
8-14
SOLUTIONS TO REVIEW EXERCISES
RE8-1
(a)
Selling price $ 5,200
Less: Costs of completion (250)
Net realizable value $ 4,950
Under FIFO, the net realizable value, $4,950, should be used as the market value to apply the
lower of cost or market rule.
(b)
Selling price $ 5,200
Less: Costs of completion (250)
Ceiling $ 4,950
Less: Normal profit margin (2,400)
Floor $ 2,550
Under LIFO, the market value is defined as replacement cost subject to a ceiling and a floor
constraint. The current replacement cost is $5,000. Because this is above the NRV (ceiling), the
$4,950 ceiling should be used as the market value to apply the lower of cost or market rule.
RE8-2
Ceiling $ 300
Less: Normal profit margin (35)
Floor $ 265
Because Black uses LIFO, the market value is defined as replacement cost subject to a ceiling
and a floor constraint. The current replacement cost is $250. Because this is below the floor, the
$265 floor should be used as the market value to apply the lower of cost or market value rule.
RE8-3
(a) The NRV is computed as:
Product 1 Product 2 Product 3

Selling price $ 75 $ 120 $ 90
Costs of completion 15 30 20
Costs of disposal 4 2 5
NRV $ 56 $ 88 $ 65
(b) Applying the lower of cost or net realizable value rule, the inventory value of each item is
computed as:
Cost Market (NRV) Carrying Value

Product 1 $ 50 $ 56 $ 50
Product 2 90 88 88
Product 3 75 65 65
8-15
RE8-4
2019 Cost of Goods Sold .......................................................... 14,000*

Inventory ..................................................................... 14,000
*$312,000 – $298,000
RE8-5
2019 Loss on Write-Down of Inventory .................................... 14,000*

Allowance to Reduce Inventory to NRV................ 14,000
*$312,000 – $298,000
RE8-6
Cost of goods available for sale ................................................. $125,000

Less: Estimated cost of goods sold:
Net sales............................................................................. $ 80,000
Gross profit rate ................................................................ 35%
Estimated gross profit ....................................................... $ 28,000
Estimated cost of goods sold ($80,000 – $28,000) ....... (52,000)
Estimated cost of ending inventory ............................................ $ 73,000
RE8-7
Cost-to-retail ratio (for purchases): $75,000/$193,000* = 0.389

*$200,000 + $15,000 – $22,000
Ending inventory at retail = $107,000
Ending inventory at FIFO cost: (0.389 × $107,000) = $41,623
RE8-8
Cost-to-retail ratio: ($35,000 + $75,000)/($92,000 + $200,000 + $15,000 – $22,000) = 0.386 (rounded)

Ending inventory at average cost: (0.386 × $107,000) = $41,302
RE8-9
Cost-to-retail ratio (for beginning inventory): $35,000/$92,000 = 0.380 (rounded)

Net purchases at retail: $200,000 + $15,000 – $22,000 = $193,000
Cost-to-retail ratio (for purchases): $75,000/$193,000 = 0.389 (rounded)
Ending inventory at LIFO cost:
$92,000 × 0.380 = $34,960 (rounded back to original cost)
$15,000 × 0.389 = 5,835
Ending inventory $40,795
8-16
RE8-10
Cost-to-retail ratio: $110,000/$307,000* = 0.358
*$92,000 + $200,000 + $15,000

Ending inventory at lower of cost or market: (0.358 × $107,000) = $38,306
RE8-11
Cost Retail
Beginning inventory....................................................................... $ 20,000 $ 35,000
Purchases ........................................................................................ 180,000 322,000
Goods available for sale .............................................................. $200,000 $ 357,000
Sales ................................................................................................. (300,000)
Ending inventory at retail ............................................................. $57,000
Ending inventory retail at base-year price:

$57,000 × (100/110) = $51,818
Inventory change at retail base-year price:

$51,818 – $35,000 = $16,818
Inventory at retail in base-year price conversion to current-year retail price:

$16,818 × (110/100) = $18,500
Current costs:
Step 1: Cost-to-retail for purchases ($180,000/$322,000) = 0.56
Step 2: $18,500 × 0.56 = $10,360
Year-end LIFO inventory:

Base-year layer $20,000
Layer added 10,360
Ending inventory $30,360
RE8-12
2019: Income Statement: Cost of goods sold is overstated by $10,000 and net income is
understated by $10,000.
Balance Sheet: Ending inventory and retained earnings are understated by $10,000.
2020: Income Statement: Cost of goods sold is understated by $10,000 and net income is
overstated by $10,000.
Balance Sheet: Ending inventory and retained earnings are correct because the errors
have counterbalanced each other.
8-17
RE8-13
2019 Income Summary ............................................................. 300,000

Inventory ..................................................................... 300,000
To close beginning inventory.
Inventory ............................................................................ 298,000
Income Summary ...................................................... 298,000
To record ending inventory.
RE8-14
2019 Income Summary ............................................................. 300,000

Inventory ..................................................................... 300,000
Inventory ............................................................................ 312,000
Income Summary ...................................................... 312,000
Loss Due to Inventory Write-Down ................................. 14,000*

*$312,000 – $298,000
SOLUTIONS TO EXERCISES
E8-1
The net realizable value is computed as follows:
Product Cost Net Realizable Value

A $80 $150 – $32 = $118
B $96 $120 – $30 = $ 90
Inventory Valuation:
Product A—$80 Cost is used because it is lower than net realizable value
Product B—$90 Net realizable value is used because it is less than cost
8-18
E8-2
1.
Under the LCM rule, the market value is defined as replacement cost subject to a ceiling
and a floor constraint as follows:
Replacement Net Realizable Net Realizable Value Less

Product Cost Cost Value (Ceiling) Normal Profit Margin (Floor)
A $80 $70 $150 – $32 = $118 $118 – 30%($150) = $73*
B $96 $98 $120 – $30 = $90* $90 – 30%($120) = $54
*Designated market value
Inventory valuation:
Product A—$73 Net realizable value less a normal profit margin is used because
replacement cost is less than the floor and net realizable value less
a normal profit margin is less than cost.
Product B—$90 Net realizable value is used here because replacement cost is higher
than the ceiling and NRV is lower than cost.
2. For Product A, the use of a “floor” constraint prevents an excessive write-down of

inventory. If the floor constraint were not imposed, an excessive loss would be
recognized in the period of the write-down followed by an excessive profit in future
periods. Therefore, the imposition of the floor constraint prevents the profit distortion that
would occur by an understatement of inventory and overstatement of losses in the
current period.
For Product B, the use of a "ceiling" constraint prevents inventory from being valued at an
amount that exceeds the amount the company could realize by selling it.
8-19
E8-3
(1) Assuming the LCNRV rule is applied to each item of inventory, the correct inventory value is
computed as shown below:
Estimated
Selling Cost of Inventory
Product Cost Price Disposal NRV Value
A $ 90,000 $ 150,000 $ 20,000 130,000 $ 90,000
B 110,000 120,000 15,000 105,000 105,000
C 60,000 70,000 5,000 65,000 60,000
D 100,000 115,000 5,000 110,000 100,000
E 105,000 110,000 8,000 102,000 102,000
Total $457,000
(2) Assuming the LCNRV rule is applied to the total of inventory, the correct inventory value is
computed as shown below:
Estimated
Selling Cost of Inventory
Product Cost Price Disposal NRV Value
A $ 90,000 $ 150,000 $ 20,000
B 110,000 120,000 15,000
C 60,000 70,000 5,000
D 100,000 115,000 5,000
E 105,000 110,000 8,000
Total $465,000 $565,000 $53,000 $512,000 $465,000
(3) Applying the LCNRV rule to the total of inventory will result in higher inventory valuations
and lower losses relative to applying the rule to each individual item of inventory. This
result occurs because the application of the LCNRV rule to groups of inventory allows
price declines in some of the units of inventory to be offset by price increases in other
units of inventory. While either approach is acceptable under GAAP, a company should
use the method that most clearly reflects periodic income.
8-20
E8-4
1. If Tuell is using LIFO, the LCM rule should be applied. Under the LCM rule, the market
value is defined as replacement cost subject to a ceiling and a floor constraint.
Designated Inventory
Case Cost Market Value
1 $5.00 $5.10 $5.00 cost
2 $5.00 $5.30 $5.00 cost
3 $5.00 $4.70 $4.70 NRV less normal profit
4 $5.00 $4.10 $4.10 replacement cost
5 $5.00 $4.70 $4.70 NRV
2.
If Tuell is using the average cost method, the LCNRV rule should be applied:
Net
Realizable Inventory
Case Cost Value value
1 $5.00 $5.10 $5.00 cost
2 $5.00 $5.50 $5.00 cost
3 $5.00 $4.80 $4.80 NRV
4 $5.00 $4.20 $4.20 NRV
5 $5.00 $4.70 $4.70 NRV
3. IFRS
Net
Realizable Inventory
Case Cost Value Value
1 $5.00 $5.10 $5.00 cost
2 $5.00 $5.50 $5.00 cost
3 $5.00 $4.80 $4.80 NRV
4 $5.00 $4.20 $4.20 NRV
5 $5.00 $4.70 $4.70 NRV
Note that for all inventory cost flow assumptions other than LIFO and the retail inventory method,
the use of IFRS results in the same inventory value as under U.S. GAAP.
8-21
E8-5
1. a. Lower of Cost Inventory

Product Units × or NRV = Value
A 600 $0.80 $ 480
B 250 $1.50 375
C 150 $5.00 750
D 100 $6.40 640
E 80 $24.60 1,968
Total inventory value $4,213
b. Lower of Cost
Product Units CostNRV or NRV
Group 1
A 600 $600 $480.00
B 250 375 387.50
Total $975 $867.50 $ 867.50
Group 2
C 150 $ 750 $ 787.50
D 100 650 640.00
Total $1,400 $1,427.50 1,400.00
Group 3
E 80 $2,000 $1,968.00 1,968.00
Total inventory value $4,235.50
c. Product Units Cost NRV

A 600 $ 600 $ 480.00
B 250 375 387.50
C 150 750 787.50
D 100 650 640.00
E 80 2,000 1,968.00
Total $4,375 $4,263.00
Total inventory value $4,263.00
2. The decline in the value of inventory below cost may be ignored in interim financial
statements if the decline is considered to be temporary.
8-22
E8-6
1. a. Direct Method
2019
Dec. 31 Cost of Goods Sold .......................................................... 1,500
Inventory...................................................................... 1,500
To record inventory at lower of cost or NRV.
2020
Dec. 31 Cost of Goods Sold .......................................................... 1,000
Inventory...................................................................... 1,000
b. Allowance Method
2019
Dec. 31 Loss on Write-Down of Inventory .................................... 1,500
Allowance to Reduce Inventory to NRV ................ 1,500
2020
During Cost of Goods Sold .......................................................... 11,500
the Allowance to Reduce Inventory to NRV....................... 1,500
Year Inventory...................................................................... 13,000
Dec. 31 Loss on Write-Down of Inventory .................................... 1,000
Allowance to Reduce Inventory to NRV ................ 1,000
2. The two methods produce the same net inventory valuation and have the same effect
on net income. At the end of 2019, inventory would be valued at $11,500 and income
would be $1,500 lower under each method. At the end of 2020, both methods again
report the same net value for inventory ($14,000) and have the same effect on income
(a decrease of $1,000).
By including the decline in inventory value in cost of goods sold, the direct method
comingles the decline in inventory value with cost of goods sold, making the effects of
the write-down more difficult to see. In contrast, the allowance method uses a separate
loss account that makes the effects of the write-down easier to identify.
8-23
E8-7
Beginning inventory $ 170,000

Purchases on hand ($472,000 – $60,000 in transit) 412,000
Cost of goods available for sale $ 582,000
Less: Cost of goods sold* (448,000)
Inventory on hand September 28, 2019, and
destroyed by the fire $ 134,000
*Selling Price = Cost + 25% Markup on cost
$560,000 = 1.25 × Cost, or Cost = $560,000 ÷ 1.25 = $448,000
E8-8 [AICPA Adapted]
1. HODGE COMPANY
Calculation of Estimated Loss on Inventory
in the Flood Using Gross Margin
(Profit) Method
November 21, 2019
Inventory at November 1, 2019....................................................... $ 100,000
Purchases from November 1, 2019, to date of flood .................. 140,000
Cost of goods available for sale ..................................................... $ 240,000
Estimated cost of goods sold:
Net sales from November 1, 2019, to date of flood .............. $220,000
Less: Estimated gross margin (profit) ($220,000 × 30%) ......... (66,000) (154,000)
Estimated cost of inventory at date of flood ................................ $ 86,000
Less: Salvage goods.......................................................................... (10,000)
Estimated loss on inventory in the flood ........................................ $ 76,000
2. The relevance of the gross profit method depends on the accuracy of the gross profit
percentage. If the cost of purchases, productivity, sales returns and allowances, or
purchase returns and allowances have changed, the company should adjust the gross
profit percentage used. In addition, if the types of inventory have different markups, the
company should use separate gross profit rates to each type of inventory to increase the
accuracy of the estimate. Finally, if there has been a write-down of inventory or a LIFO
liquidation, the gross profit rate should also be adjusted.
8-24
E8-9
The following formulas are useful in solving this problem:
Gross Profit on Cost of Goods Sold

Gross Profit on Net Sales =
1 + Gross Profit on Cost of Goods Sold
Convert gross profit on cost of goods sold to gross profit on net sales
0.20 0.20
20%: = = 16.67% (rounded) would be consistent with the 40% scenario (below)
1 + 0.20 1.20
0.25 0.25
25%: = = 20%
1 + 0.25 1.25
0.40 0.40
40%: = = 28.6% (rounded)
1 + 0.40 1.40
Note: In any profitable situation, gross profit on net sales is less than gross profit on cost of goods
sold.
E8-10
1.
Beginning inventory ............................................................................. $ 38,000

Purchases .............................................................................................. 19,000
Cost of goods available for sale ........................................................ $ 57,000
Cost of goods sold [(sales of $51,000 × (1 – 0.333*)] ...................... (34,017)
Ending inventory before theft ............................................................ $ 22,983
Ending inventory after theft ................................................................ (15,000)
Inventory lost ......................................................................................... $ 7,983
*Gross profit as a percent of sales = 0.5 ÷ (1 + 0.5) = 0.333
2. The gross profit method assumes that the gross profit percentage from the previous
period(s) is applicable to the current period. Using this percentage assumes that there
has not been any change in the relationship between gross profit and net sales, due to,
for example, cost or productivity changes. Also, if the company uses a single gross profit
percentage, it is assuming that all inventories are held in the same proportion.
8-25
E8-11
1. Cost Retail
Purchases .................................................................................... $65,200 $100,000
Markups (net) .............................................................................. 1,900
Markdowns (net) ........................................................................ (400)
$65,200 $101,500
$65,200
Cost-to-retail ratio: = 0.642
$101,500
Add: Beginning inventory ......................................................... 28,400 40,200
Goods available for sale ........................................................... $93,600 $141,700
Less: Sales..................................................................................... (80,000)
Ending inventory at retail .......................................................... $ 61,700
Ending inventory at cost ($61,700 × 0.642) ............................. $39,611
2. Cost Retail
Beginning inventory ................................................................... $28,400 $ 40,200
Purchases .................................................................................... 65,200 100,000
Markups (net) .............................................................................. 1,900
Markdowns (net) ........................................................................ (400)
$93,600
$141,700
Less: Sales..................................................................................... (80,000)
8-26
E8-11 (concluded)
3. Cost Retail
$28,400
$40,200
Purchases .................................................................................... 65,200 $100,000
Markups (net) .............................................................................. 1,900
Markdowns (net) ........................................................................ (400)
$101,500
$65,200
$101,500
Less: Sales..................................................................................... (80,000)
Ending inventory at LIFO cost:
[$40,200 × 0.706 (beginning layer)] ................................... $28,400*
[$21,500 × 0.642 (new layer)] ............................................. 13,803
Total................................................................................. $42,203
*Adjusted for rounding error to original cost.
4. Cost Retail
Purchases .................................................................................... 65,200 100,000
Markups (net) .............................................................................. 1,900
$93,600 $142,100
$93,600
$142,100
Less: Markdowns (net) .............................................................. (400)
Sales.................................................................................... (80,000)
Ending inventory at LCM ($61,700 × 0.659) ............................ $40,660
Cost Retail
Beginning inventory................................................................................. $ 90,000 $ 130,000
Purchases .................................................................................................. 330,000 460,000
Markups ..................................................................................................... 10,000
$420,000 $ 600,000
$420,000
$600,000
Less: Markdowns ..................................................................................... (40,000)
Sales ................................................................................................. (480,000)
Ending inventory at retail ....................................................................... $ 80,000
Ending inventory at LCM (0.700 × $80,000) .......................................... $ 56,000
8-27
E8-13
1. a. Cost Retail
Purchases ....................................................................... $54,600 $ 92,400
Freight-in ......................................................................... 840
Markups (net) ................................................................ 600
Markdowns (net) ........................................................... (1,144)
$55,440 $ 91,856
$55,440
$91,856
Beginning inventory ...................................................... 11,160 18,000
Goods available for sale ............................................. $66,600 $109,856
Less: Sales ....................................................................... (94,056)
Ending inventory at retail ............................................. $ 15,800
Ending inventory at cost ($15,800 × 0.604)................ $ 9,543
b. Cost Retail
Beginning inventory ...................................................... $11,160 $ 18,000
Purchases ....................................................................... 54,600 92,400
Freight-in ......................................................................... 840
Markups (net) ................................................................ 600
Markdowns (net) ........................................................... (1,144)
$66,600
$109,856
Less: Sales ....................................................................... (94,056)
Ending inventory at average cost
($15,800 × 0.606) ..................................................... $ 9,575
c. Cost Retail
$11,160
$18,000
Purchases ....................................................................... $54,600 $ 92,400
Freight-in ......................................................................... 840
Markups (net) ................................................................ 600
Markdowns (net) ........................................................... (1,144)
$55,440 $ 91,856
$55,440
$91,856
Less: Sales ....................................................................... (94,056)
Ending inventory at LIFO cost
[$15,800 × 0.620 (all beginning layer)] ................ $ 9,796
8-28
E8-13 (concluded)
d. Cost Retail
Purchases ....................................................................... 54,600 92,400
Freight-in ......................................................................... 840
Markups (net) ................................................................ 600
$66,600 $111,000
$66,600
$111,000
Less: Markdowns (net) ................................................. (1,144)
Sales ...................................................................... (94,056)
Ending inventory at LCM ($15,800 × 0.600) ............... $ 9,480
2. Two general assumptions are necessary for the retail inventory method to produce
accurate estimates of inventory. First, the items in a company’s inventory should be
sufficiently homogeneous so that all of the items have the same markup, or if different
markups exist, the items in ending inventory should be in the same proportion to those
items in goods available for sale. Second, the cost-to-retail ratio must remain constant
over the accounting period, or any change that does occur should parallel the changes
in the costs of purchases.
E8-14
Cost Retail
Beginning inventory................................................................................. $20,000 $ 29,000
$20,000
$29,000
Purchases .................................................................................................. 60,000 $ 92,000
Markups (net) ........................................................................................... 1,000
Markdowns (net)...................................................................................... (3,000)
$ 90,000
$60,000
$90,000
Goods available for sale ........................................................................ $80,000 $119,000
Less: Sales .................................................................................................. (75,000)
100
Converted to base-year prices = $44,000 × = $40,000
110
8-29
E8-14 (concluded)
There is an $11,000 increase in retail inventory at base-year prices ($40,000 – $29,000).
100
Ending inventory at retail consists of: $29,000 × = $29,000
100
110
$11,000 × = 12,100
100
$41,100
Ending inventory at cost: $29,000 × 0.69 = $20,000*

$12,100 × 0.667 = 8,071
$28,071
*Adjusted for rounding error to original cost.
E8-15
Cost Retail
Beginning inventory................................................................................. $ 75,000 $ 120,000
$75,000
$120,000
Purchases .................................................................................................. 110,000 $ 165,000
Markups (net) ........................................................................................... 8,000
Markdowns (net)...................................................................................... (6,000)
$ 167,000
$110,000
$167,000
Goods available for sale ........................................................................ $185,000 $ 287,000
Less: Sales .................................................................................................. (147,000)
100
Converted to base-year prices = $140,000 × = $127,273
110
There is a $7,273 increase in retail inventory in base-year prices ($127,273 – $120,000).
100
100
110
$7,273 × = 8,000
100
$128,000
Ending inventory at cost: $120,000 × 0.625 = $ 75,000

$8,000 × 0.659 = 5,272
$ 80,272
8-30
100
Ending inventory converted to base-year prices = $660,000 × = $600,000
110
There is a $100,000 increase in retail inventory in base-year prices ($600,000 – $500,000).
100
100
110
$100,000 × = 110,000
100
$610,000
Ending inventory at cost: Beginning inventory = $360,000

$110,000 × 0.70 = 77,000
$437,000
E8-17
1. Current year:
Income statement: Income is correct because the errors in Purchases and Ending
Inventory offset each other.
Balance sheet: Ending Inventory and Accounts Payable are understated.
Succeeding year:
Income statement: If the purchase is recorded in the succeeding year, income will be
correct because the overstatement of Purchases and understatement of Beginning
Inventory will offset each other. If the purchase is not recorded in the succeeding year,
income will be overstated because Beginning Inventory is understated and therefore
Cost of Goods Sold is understated.
Balance sheet: Retained Earnings will be overstated if the purchase is not recorded in the
succeeding year because net income will be overstated. Accounts Payable will be
understated if the purchase is not recorded.
2. Current year:
Income statement: Income is overstated because Purchases are understated and
therefore Cost of Goods Sold is understated.
Balance sheet: Liabilities (Accounts Payable) are understated because a purchase has
not been recorded. Retained Earnings are overstated because net income is overstated.
Succeeding year:
Income statement: No effect in the succeeding year if the purchase is not recorded. If it
is recorded in the succeeding year, income will be understated because Purchases and
Cost of Goods Sold will be overstated. This would result in Retained Earnings being
correctly stated at the end of the succeeding year.
Balance sheet: If the error is not corrected, Accounts Payable will continue to be
understated. It will be doubly understated if a debit is made to Accounts Payable when
payment is actually made for the purchase. Retained Earnings will also be overstated if
the error from the previous year is not corrected.
8-31
E8-17 (concluded)
3. Current year:
Income statement: Income is overstated because Cost of Goods Sold is understated.
Balance sheet: Ending Inventory is overstated, and Retained Earnings is overstated
because of the overstatement of current income.
Succeeding year:
Income statement: Income is understated because Beginning Inventory is overstated
and, therefore, Cost of Goods Sold is overstated.
Balance sheet: Ending Inventory will be correct if no other errors are made, and Retained
Earnings will also be correct since the understatement of income in the second year
offsets the overstatement in the first year.
Net income before adjustments ............................................................................ $20,000

Adjustments:
Understatement of beginning inventory ........................................................ (6,000)
Overstatement of ending inventory ............................................................... (5,000)
Overstatement of sales revenue ..................................................................... (1,000)
Net income after adjustments................................................................................ $ 8,000
Note also that the balance sheet will have to be adjusted to reflect the correction of ending
inventory and to show the $1,000 cash advance as a liability (customer deposits).
E8-19
1. a. Direct Method
2019
Dec. 31 Income Summary ...................................................... 10,000
Inventory............................................................... 10,000
31 Inventory ..................................................................... 11,500
Income Summary ................................................ 11,500
2020
Inventory............................................................... 11,500
31 Inventory ..................................................................... 14,000
Income Summary ................................................ 14,000
8-32
E8-19 (concluded)
b. Allowance Method
2019
Inventory............................................................... 10,000
31 Inventory ..................................................................... 13,000
Income Summary ................................................ 13,000
31 Loss on Write-Down of Inventory ............................. 1,500
Allowance to Reduce Inventory to NRV ......... 1,500
2020
Inventory............................................................... 13,000
31 Inventory ..................................................................... 15,000
Income Summary ................................................ 15,000
31 Loss on Write-Down of Inventory ............................. 1,000
Allowance to Reduce Inventory to NRV ......... 1,000
2. The inventory valuation under the perpetual and periodic systems is the same.
Regardless of the type of inventory system used and regardless of how the LCNRV rule is
applied (direct or allowance method), a company will see the same net effect on
inventory and income.
8-33
SOLUTIONS TO PROBLEMS
P8-1
1. U.S. GAAP: FIFO Cost Flow Assumption Used
Net Lower
Realizable of Cost
Case Cost Value or NRV
1 $10.00 $ 9.20 $ 9.20 NRV
2 8.00 7.80 7.80 NRV
3 15.00 14.00 14.00 NRV
4 18.00 17.00 17.00 NRV
5 25.00 25.30 25.00 cost
If the LCNRV rule is applied to individual items:

Item Units × Valuation = Total
1 500 $ 9.20 $ 4,600
2 400 7.80 3,120
3 300 14.00 4,200
4 200 17.00 3,400
5 100 25.00 2,500
Total inventory valuation $17,820
2. U.S. GAAP: LIFO Cost Flow Assumption Used

NRV Less Normal Lower of
Item Cost Replacement NRV Profit Margin Cost or Market
1 $10.00 $ 9.10* $ 9.20 $ 7.20 $ 9.10
2 8.00 8.10 7.80* 6.20 7.80
3 15.00 13.50* 14.00 11.00 13.50
4 18.00 12.00 17.00 13.40* 13.40
5 25.00 25.50 25.30* 20.30 25.00
*Designated as market
If the lower of cost or market rule is applied to individual items:

1 500 $ 9.10 $ 4,550
2 400 7.80 3,120
3 300 13.50 4,050
4 200 13.40 2,680
5 100 25.00 2,500
3. IFRS
Net Lower
Realizable of Cost
Case Cost Value or NRV
1 $10.00 $ 9.20 $ 9.20 NRV
2 8.00 7.80 7.80 NRV
3 15.00 14.00 14.00 NRV
4 18.00 17.00 17.00 NRV
5 25.00 25.30 25.00 cost
8-34
P8-1 (concluded)
If the lower of cost or market rule is applied to individual items:

1 500 $ 9.20 $ 4,600
2 400 7.80 3,120
3 300 14.00 4,200
4 200 17.00 3,400
5 100 25.00 2,500
4. When the FIFO inventory cost flow assumption is used, there are no differences between
IFRS and U.S. GAAP. Note that IFRS does not allow the use of LIFO. Thus, when the LIFO
inventory cost flow assumption is used for U.S. GAAP, the inventory valuation reported
under IFRS will differ from that reported under U.S. GAAP due to the use of different cost
flow assumptions.
P8-2
1. a. 2019
Loss on Write-Down of Inventory ................................ 4,000
Allowance to Reduce Inventory to NRV ............ 4,000
2020
Cost of Goods Sold ...................................................... 60,000
Allowance to Reduce Inventory to NRV................... 4,000
Inventory.................................................................. 64,000
2021
Inventory.................................................................. 71,000
No entry is required to apply the LCNRV rule because
the cost of the inventory is lower than its NRV.
b. 2019
Inventory.................................................................. 4,000
2020
Inventory.................................................................. 1,000
2021
No entry required
8-35
P8-2 (concluded)
2. The two methods produce the same net inventory valuation and have the same effect
on net income. At the end of 2019, inventory would be valued at $60,000 and income
would be $4,000 lower under each method. At the end of 2020, both methods again
report the same net value for inventory ($70,000) and have the same effect on income
(a decrease of $1,000). Finally, at the end of 2021, inventory is valued at cost of $75,000
under both methods.
By including the decline in inventory value in cost of goods sold, the direct method
comingles the decline in inventory value with cost of goods sold, making the effects of
the write-down more difficult to see. In contrast, the allowance method uses a separate
loss account that makes the effects of the write-down easier to identify.
P8-3
1. a. 2019
Loss on Write-Down of Inventory ........................................... 2,000
Allowance to Reduce Inventory to NRV....................... 2,000
2020
Cost of Goods Sold ................................................................. 128,000
Allowance to Reduce Inventory to NRV ............................. 2,000
Inventory ............................................................................ 130,000
To record the cost of inventory sold.
No other entry is necessary because the inventory is valued at cost.
b. 2019
Cost of Goods Sold ................................................................. 2,000
Inventory ............................................................................ 2,000
To record inventory at NRV.
2020
No entry is necessary because the inventory is valued at cost.
2. a. Income Statement
2019 2020
Cost of goods sold—prior to NRV valuation ....................... $595,000 $605,000
Loss due to NRV valuation .................................................... 2,000
Total of expenses and losses ................................................. $597,000 $605,000
Balance Sheet
2019 2020
Inventory at cost ..................................................................... $130,000 $135,000
Less: Allowance to reduce inventory to NRV ..................... (2,000) —
Inventory at lower of cost or NRV ........................................ $128,000 $135,000
b. Income Statement
2019 2020
Cost of goods sold.................................................................. $597,000 $605,000
Balance Sheet
2019 2020
Inventory at lower of cost or NRV ........................................ $128,000 $135,000
8-36
P8-4
1. Inventory, July 1, 2019 .......................................................................... $ 55,300

Purchases (less $6,000 in transit) .................................................. 376,100
Less: Purchases returns ................................................................. (10,400)
Purchases discounts taken ................................................. (6,800)
Freight-in.......................................................................................... 3,500
Cost of goods available for sale and on hand ............................... $ 417,700
Sales........................................................................................................ $ 592,000
Less: Sales returns.................................................................................. (6,600)
Net sales................................................................................................. $ 585,400
Cost of goods sold = $585,400 × (1 – 0.40)
= $351,240
Cost of goods salvaged = $4,700 × (1 – 0.40)
= $2,820
Inventory lost in the fire:
Cost of goods available for sale and on hand ............................... $ 417,700
Less: Cost of goods sold ..................................................................... (351,240)
Cost of goods salvaged ............................................................ (2,820)
Inventory lost ......................................................................................... $ 63,640
2. When a company uses the periodic inventory method, it is estimating the ending
inventory and cost of goods sold in its interim financial reports (unless it took a physical
inventory). Therefore, you might be concerned about the accuracy of the reported
amounts.
The gross profit method assumes that the gross profit percentage from the previous
period(s) is applicable to the current period. Using this percentage assumes that there
has not been any change in the relationship between gross profit and net sales, due to,
for example, cost or productivity changes. Also, if the company uses a single gross profit
percentage, it is assuming that inventories across departments are held in the same
proportion.
P8-5 [AICPA Adapted]
PADWAY CORPORATION
Computation of Value of Work-in-Process Inventory Lost
June 30, 2019
Sales ................................................................................................. $ 340,000
Less: Gross profit (25%) .................................................................. (85,000)
Cost of goods sold......................................................................... $ 255,000
Add: Finished goods, June 30, 2019 ........................................... 119,000
Cost of goods available for sale ................................................. $ 374,000
Less: Finished goods, January 1, 2019 ........................................ (140,000)
Cost of goods manufactured and completed ................. $ 234,000
8-37
P8-5 (concluded)
Raw materials, January 1, 2019 ................................................... $ 30,000

Purchases ........................................................................................ 115,000
Raw materials available ............................................................... $ 145,000
Raw materials, June 30, 2019....................................................... (62,000)
Raw materials used ....................................................................... $ 83,000
Direct labor ..................................................................................... $ 80,000
Manufacturing overhead ............................................................ 40,000
Work in process, January 1, 2019 ................................................ 100,000 220,000
Cost of production ........................................................................ $ 303,000
Less: Cost of goods manufactured and completed ............... (234,000)
Work-in-process inventory lost ..................................................... $ 69,000
P8-6
1. Cost Retail
Purchases .................................................................................... $140,000 $ 190,000
Less: Purchases discounts taken ............................................. (3,000)
Purchases returns.............................................................. (5,000) (8,000)
Freight-in ...................................................................................... 20,000
Net additional markups ($50,000 – $10,000) .......................... 40,000
Net markdowns ($15,000 – $3,000) .......................................... (12,000)
$152,000 $ 210,000
$152,000
$210,000
Beginning inventory ................................................................... 29,000 45,000
Goods available for sale ........................................................... $181,000 $ 255,000
Less: Net sales............................................................................. (190,000)
Employee discounts ......................................................... (3,000)
Ending inventory at cost ($62,000 × 0.724) ............................. $ 44,888
2. Cost Retail
Beginning inventory ................................................................... $ 29,000 $ 45,000
Purchases .................................................................................... 140,000 190,000
Less: Purchases discounts taken .............................................. (3,000)
Purchases returns........................................................................ (5,000) (8,000)
Freight-in ...................................................................................... 20,000
Net additional markups............................................................. 40,000
Net markdowns .......................................................................... (12,000)
$181,000
$255,000
Less: Net sales and employee discounts ................................ (193,000)
Ending inventory at cost ($62,000 × 0.710) ............................. $ 44,020
8-38
P8-6 (concluded)
3. Cost Retail
$29,000
$45,000
Purchases .................................................................................... $140,000 $ 190,000
Freight-in ...................................................................................... 20,000
Net markdowns .......................................................................... (12,000)
$152,000 $ 210,000
$152,000
$210,000
Ending inventory at cost:
$45,000 × 0.644 = $29,000*
$17,000 × 0.724 = 12,308 ............................................ $ 41,308
*Adjusted for rounding error to original cost
4. Cost Retail
Purchases .................................................................................... 140,000 190,000
Freight-in ...................................................................................... 20,000
$181,000 $ 267,000
$181,000
$267,000
Net markdowns .......................................................................... (12,000)
Ending inventory at LCM ($62,000 × 0.678) ............................ $ 42,036
8-39
P8-7
1. Cost Retail
Purchases .................................................................................... $320,000 $ 600,000
Freight-in ...................................................................................... 16,000
Net additional markups ($60,000 – $12,000) .......................... 48,000
Net markdowns ($15,000 – $4,000) .......................................... (11,000)
$330,000 $ 637,000
$330,000
$637,000
Beginning inventory ................................................................... 100,000 180,000
Less: Net sales ............................................................................ (580,000)
Ending inventory at cost ($237,000 × 0.518) ........................... $122,766
2. Cost Retail
Purchases .................................................................................... 320,000 600,000
Freight-in ...................................................................................... 16,000
Net markdowns .......................................................................... (11,000)
$430,000 $ 817,000
$430,000
$817,000
Less: Net sales ............................................................................. (580,000)
8-40
P8-7 (concluded)
3. Cost Retail
$100,000
$180,000
Purchases .................................................................................... $320,000 $ 600,000
Freight-in ...................................................................................... 16,000
Net markdowns .......................................................................... (11,000)
$330,000 $ 637,000
$330,000
$637,000
Less: Net sales ............................................................................. (580,000)
($180,000 × 0.556) .......................................................... $100,000*
($ 57,000 × 0.518).......................................................... 29,526
$129,526
*Adjusted for rounding error to original cost
4. Cost Retail
Purchases .................................................................................... 320,000 600,000
Freight-in ...................................................................................... 16,000
$430,000 $ 828,000
$430,000
$828,000
Less: Net sales ............................................................................ (580,000)
Net markdowns ................................................................ (11,000)
8-41
RED DEPARTMENT STORE

Computation of Estimated Inventory
Using Retail Inventory Method
December 31, 2019
Cost Retail
Inventory at January 1, 2019........................................................ $ 32,000 $ 80,000
Purchases ........................................................................................ 270,000 590,000
Freight-in.......................................................................................... 7,600
Net additional markups ($60,000 – $10,000).............................. 50,000
Cost ratio ($309,600 ÷ $720,000) = 0.430
Less: Sales ....................................................................................... (600,000)
Net markdowns ($25,000 – $5,000) ................................... (20,000)
Estimated normal shrinkage (2% × $600,000) .................. (12,000)
Estimated inventory at retail at December 31, 2019 ............... $ 88,000
Estimated inventory at December 31, 2019,
lower of cost or market ($88,000 × 0.430)............................ $ 37,840
P8-9
1. Cost Retail
Net purchases ($75,000 – $2,000; $180,000 – $5,000) ............ 73,000 175,000
Net additional markups ($3,000 – $1,000) .............................. 2,000
$98,000 $ 237,000
$98,000
$237,000
Less: Net sales ............................................................................ (205,000)
Net markdowns ($7,000 – $2,000) .................................. (5,000)
2. Ending inventory at retail: $80,000

Ending inventory at retail in base-year prices: $80,000 ÷ 1.05 = $76,190
Beginning inventory at retail in base-year prices: $60,000
Increase in inventory at retail in base-year prices: $16,190
Increase in inventory at retail in current-year prices: $16,190 × 1.05 = $17,000
Increase in inventory at cost in current-year prices: $17,000 × 0.50 = $8,500
Ending inventory at cost—base: $25,000
—addition: 8,500
Ending inventory, total cost $33,500
8-42
P8-10
2019
Cost Retail
$50,000
$100,000
Purchases ........................................................................................ $200,000 $ 420,000
Net additional markups ................................................................ 20,000
Net markdowns .............................................................................. (10,000)
$200,000 $ 430,000
$200,000
$430,000
Less: Sales ........................................................................................ (400,000)
Ending inventory at retail ............................................................. $ 130,000
Ending inventory at retail at base-year prices:

100
$130,000 × = $120,370
108
Inventory change at retail at base-year prices:

$120,370 – $100,000 = $20,370
Change at relevant current costs:

108
$20,370 × × 0.465 = $10,230
100

2019 layer 10,230
$60,230
2020
Cost Retail
Purchases ........................................................................................ $250,000 $ 550,000
Net markdowns .............................................................................. (40,000)
$250,000 $ 540,000
$250,000
$540,000
Less: Sales ........................................................................................ (600,000)
8-43
P8-10 (concluded)

100
$70,000 × = $60,870
115

$60,870 – $120,370 = $(59,500)

108
$(20,370) × × 0.465 = $(10,230) (all of 2019 layer)
100
100
(39,130) × × 0.50 = (19,565) (from base-year layer)
100
$(59,500) $(29,795)

$60,230 – $29,795 = $30,435 (remaining base-year layer)
2021
Cost Retail
Purchases ........................................................................................ $240,000 $ 500,000
Net markdowns .............................................................................. (20,000)
$240,000 $ 490,000
$240,000
$490,000
Less: Sales ........................................................................................ (450,000)

100
$110,000 × = $91,667
120
$91,667 – $60,870 = $30,797
120
$30,797 × × 0.49 = $18,109
100
Base layer $30,435
2021 layer 18,109
$48,544
8-44
P8-11
2018 2019 2020 2021
Cost Retail Cost Retail Cost Retail Cost Retail
Beginning inventory $40,000 $ 80,000 $ 33,333 $ 70,000 $ 39,999 $ 90,000 $ 44,963 $ 110,000
$40,000
$80,000
Purchases 85,500 190,000 92,000 230,000 117,600 280,000 147,200 320,000
$85,500 $92,000 $117,600 $147,200
Cost-to-retail ratio: = 0.45 = 0.40 = 0.42 = 0.46
$190,000 $230,000 $280,000 $320,000
Goods available for sale $125,500 $ 270,000 $125,333 $ 300,000 $157,599 $ 370,000 $192,163 $ 430,000
Sales (200,000) (210,000) (260,000) (300,000)
Ending inventory at retail $ 70,000 $ 90,000 $ 110,000 $ 130,000
100
$ 70,000 × 66,667
105
100
90,000 × 81,818
110
100
110,000 × 120 91,667
100
130,000 × 104,000
125
$ 66,667 – $80,000 (13,333)
81,818 – 66,667 15,151
91,667 – 81,818 9,849
8-45
104,000 – 91,667 12,333
Change at retail at relevant current prices:
100 (13,333)
$ 13,333 ×
100
110 16,666
15,151 ×
100
120
9,849 × 11,819
100
125
12,333 × 15,416
100
$(13,333) × 0.50 (6,667)
16,666 × 0.40 6,666
11,819 × 0.42 4,964
15,416 × 0.46 7,091
Year-end LIFO inventory:
Base-year layer ($40,000 – $6,667) 33,333 33,333 33,333 33,333
Layer added in 2019 6,666 6,666 6,666
Layer added in 2020 4,964 4,964
Layer added in 2021 7,091
Ending inventory $ 33,333 $ 39,999 $ 44,963 $ 52,054
P8-12
2019
Cost Retail
$40,000
$90,000
Purchases ........................................................................................ $100,000 $ 210,000
Net markdowns .............................................................................. (40,000)
$100,000 $ 190,000
$100,000
$190,000

Less: Sales ........................................................................................ (200,000)

100
$80,000 × = $75,472
106

$75,472 – $90,000 = $(14,528)

100
$(14,528) × × 0.444 = $(6,450) (from base-year layer)
100

$40,000 – $6,450 = $33,550 (remaining base-year layer)
8-46
P8-12 (concluded)
2020
Cost Retail
Purchases ........................................................................................ $160,000 $ 350,000
Net markdowns .............................................................................. (70,000)
$160,000 $ 320,000
$160,000
$320,000

Less: Sales ........................................................................................ (280,000)

100
$120,000 × = $109,091
110

$109,091 – $75,472 = $33,619

110
$33,619 × × 0.50 = $18,490
100
Ending inventory (September 7, 2020) at cost:

2020 layer 18,490
$52,040
Inventory lost in the fire:

Purchases in transit............................................................................................. $ 8,000
Undamaged goods salvaged ($10,000 × 0.50)............................................. 5,000
Inventory after the fire ....................................................................................... $ 13,000
Inventory before the fire (from above) .......................................................... 52,040
Inventory lost ....................................................................................................... $(39,040)
8-47
P8-13
1. Current year: Ending inventory is correctly stated. Net income is overstated by $17,500
because purchases are understated and, therefore, cost of goods sold is understated.
Following year: Since the purchase is recorded in the purchases account in this year, net
income is understated by $17,500, because cost of goods sold is overstated.
2. Current year: Ending inventory is understated by $4,300. Net income is understated by

$4,300, because cost of goods sold is overstated.
Following year: Beginning inventory is understated by $4,300, so cost of goods sold will be
understated by $4,300 causing net income to be overstated by $4,300.
3. Current and following year: The results for both years will be the same as in 2.
Merchandise for which a purchase has been recorded is excluded from ending
inventory in current year.
4. Current year: Ending inventory is understated. Net income is correct because the errors in
purchases and ending inventory offset each other.
Following year: The net income is correct because the errors would again offset each
other.
5. Current year: Ending inventory is overstated. Net income is overstated because cost of
goods sold is understated.
Following year: Beginning inventory is overstated, which causes cost of goods sold to be
overstated and net income to be understated.
LAYNE CORPORATION
Adjustments to Initial Amounts
As of December 31, 2019
Accounts
Inventory Payable Net Sales
Initial amounts $1,750,000 $1,200,000 $8,500,000
Adjustments
[Increase (decrease)]
1 None None $ (35,000)
2 $ 50,000 $ 50,000 None
3 20,000 None None
4 26,000 None (40,000)
5 25,000 None None
6 30,000 None None
7 None 60,000 None
8 2,000 4,000 None
Total adjustments $ 153,000 $ 114,000 $ (75,000)
Adjusted amounts $1,903,000 $1,314,000 $8,425,000
8-48
P8-15
1. a. 2019
i. Income Summary ......................................................... 50,000
Inventory.................................................................. 50,000
ii. Inventory ........................................................................ 64,000
Income Summary ................................................... 64,000
iii. Loss on Write-Down of Inventory ................................ 4,000
2020
i. Income Summary ......................................................... 60,000
Inventory.................................................................. 64,000
ii. Inventory ........................................................................ 71,000
Income Summary ................................................... 71,000
iii. Loss on Write-Down of Inventory ................................ 1,000
2021
i. Income Summary ......................................................... 70,000
Inventory.................................................................. 71,000
ii. Inventory ........................................................................ 75,000
Income Summary ................................................... 75,000
iii. No entry required because cost is less than NRV.
b. 2019
i. Income Summary ......................................................... 50,000
Inventory.................................................................. 50,000
ii. Inventory ........................................................................ 60,000
Income Summary ................................................... 60,000
To record ending inventory at lower of cost or NRV.
8-49
P8-15 (concluded)
2020
i. Income Summary ......................................................... 60,000
Inventory.................................................................. 60,000
ii. Inventory ........................................................................ 70,000
Income Summary ................................................... 70,000
2021
i. Income Summary ......................................................... 70,000
Inventory.................................................................. 70,000
ii. Inventory ........................................................................ 75,000
Income Summary ................................................... 75,000
2. The use of a periodic system produces the same net inventory valuation and has the
same effect on net income as those under a perpetual system. At the end of 2019,
inventory would be valued at $60,000 and income would be $4,000 lower under either a
perpetual or periodic system. Similarly, at the end of 2020, both methods again report the
same net value for inventory ($70,000) and have the same effect on income (a
decrease of $1,000). Finally, at the end of 2021, inventory is valued at cost of $75,000
under either method.
P8-16
1. a. 2019
Income Summary ......................................................... 125,000
Inventory.................................................................. 125,000
Inventory ........................................................................ 130,000
Income Summary ................................................... 130,000
2020
Income Summary ......................................................... 128,000
Inventory.................................................................. 130,000
Inventory ........................................................................ 135,000
Income Summary ................................................... 135,000
8-50
P8-16 (concluded)
b. 2019
Income Summary ......................................................... 125,000
Inventory.................................................................. 125,000
Inventory ........................................................................ 128,000
Income Summary ................................................... 128,000
2020
Income Summary ......................................................... 128,000
Inventory.................................................................. 128,000
Inventory ........................................................................ 135,000
Income Summary ................................................... 135,000
2. a. Income Statement
2019 2020
Beginning inventory $ 125,000 $ 130,000
Less: Allowance to reduce inventory to NRV (2,000)
Net beginning inventory $ 125,000 $ 128,000
Purchases 100,000 110,000
Cost of goods available $ 225,000 $ 238,000
Less: Ending inventory (130,000) (135,000)
$ 95,000 $ 103,000
Loss due to NRV valuation 2,000 —
Cost of goods sold $ 97,000 $ 103,000
Balance Sheet
2019 2020
Inventory at cost $ 130,000 $ 135,000
Less: Allowance to reduce inventory to NRV (2,000) —
Inventory at lower of cost or NRV $ 128,000 $ 135,000
b. Income Statement
2019 2020
Beginning inventory $ 125,000 $ 128,000
Purchases 100,000 110,000
Cost of goods available $ 225,000 $ 238,000
Less: Ending inventory (128,000) (135,000)
Cost of goods sold $ 97,000 $ 103,000
Balance Sheet
2019 2020
Inventory at lower of cost or NRV $ 128,000 $ 135,000
3. The use of a periodic and a perpetual inventory system produces the same inventory
valuation and has the same effect on income.
8-51
ANSWERS TO CASES
C8-1 [AICPA Adapted]
1. Purchases from various suppliers are generally included in Caddell’s inventory when
Caddell receives the goods. For accounting purposes, in the absence of other
information, title to goods purchased FOB destination is assumed to pass when the goods
are received.
2. Caddell should account for the warehousing costs as an additional cost of inventory.
Theoretically, warehousing is a cost of readying the goods for sale and should be
included in inventory cost.
3. a. The advantages of using the dollar-value LIFO inventory cost flow method are to
reduce the cost of accounting for inventory according to the LIFO method and
to minimize the probability of unintentional liquidation of LIFO inventory.
b. The calculation of dollar-value LIFO is based on dollars of inventory, a specific
price index for each year, and broad inventory pools, whereas the conventional
quantity of goods method is applied to individual units of each separate product.
The inventory layers are identified with the price index for the year in which the
layer was added.
4. Caddell should account for the inventories consigned to Reed Company as part of
inventory. Caddell retains title to the goods until their sale by Reed; revenue cannot be
recognized as Caddell's performance obligation has not been satisfied until the sale of
the inventories by Reed.
5. In applying the lower of cost or market method, market does not exceed the ceiling or
fall below the floor. The ceiling is equal to the net realizable value, i.e., estimated selling
price in the ordinary course of business less reasonably predictable costs of completion
and disposal. The floor is equal to the net realizable value reduced by an allowance for
an approximately normal profit margin.
1. The retail inventory method can be employed to estimate retail, wholesale, and
manufacturing finished goods inventories.
The valuation of inventory under this method is arrived at by reducing the ending
inventory at retail to an estimate of the lower of cost or market. The retail value of ending
inventory can be computed by (1) taking a physical inventory, or by (2) subtracting net
sales plus net markdowns from the total retail value of merchandise available for sale
(that is, the sum of beginning inventory at retail, net purchases at retail, and net
additional markups). The reduction of ending inventory at retail to an estimate of the
lower of cost or market is accomplished by applying to it an estimated cost ratio arrived
at by dividing the retail value of merchandise available for sale as computed in (2)
above into the cost of merchandise available for sale (that is, the sum of beginning
inventory, net purchases, and other inventoriable costs).
8-52
C8-2 (concluded)
2. Since the retail method is based on an estimated cost ratio involving total merchandise
available during the period, its validity depends on the underlying assumption that the
merchandise in ending inventory is a representative mixture of all merchandise handled.
If this condition does not exist, the cost ratio may not be appropriate for the merchandise
in ending inventory and can result in significant error.
Where there are a number of inventory subdivisions for which differing rates of markup
are maintained, there is no assurance that the ending inventory mix will be
representative of the total merchandise handled during the period. In such cases,
accurate results can be obtained by subclassifications by rate of markup.
Seasonal variations in the rate of markup will nullify the ending inventory “representative
mix” assumption. Since the estimated cost ratio is based on total merchandise handled
during the period, the same rate of markup should prevail throughout the period.
Because of seasonal variations, it may be necessary to use data for the last 6 months,
quarter, or month to compute a cost ratio that is appropriate for ending inventory.
Material quantities of special sale merchandise handled during the period may also bias
the result of this method because merchandise data included in arriving at the
estimated cost ratio may not be proportionately represented in ending inventory. This
condition may be avoided by accumulating special sale merchandise data in separate
accounts.
Distortion of the ending inventory approximation under this method is often caused by an
inadequate system of inventory control. Adequate accounting controls are necessary for
the accurate accumulation of the data needed to arrive at a valid cost ratio. Physical
controls are equally important because, for interim purposes, this method is usually
applied without taking a physical inventory.
3. The advantages of using the retail method as compared with cost methods include the
following:
a. Approximate inventory values can be determined without maintaining perpetual
inventory records.
b. The preparation of interim financial statements is facilitated.
c. Losses due to fire or other casualty are readily determined.
d. Clerical work in pricing the physical inventory is reduced.
e. The cost of merchandise can be kept confidential in intracompany transfers.
4. The treatments to be accorded net additional markups and net markdowns must be
considered in light of their effects on the estimated cost ratio. If both net additional
markups and net markdowns are used in arriving at the cost ratio, ending inventory will
be converted to an estimated average cost figure. Excluding net markdowns will result in
the inventory being stated at an estimate of the lower of cost or market.
The lower cost ratio arrived at by excluding net markdowns permits the pricing of
inventory at an amount that reflects its current market value. The assumption is that net
markdowns represent a loss of market value that should be recognized in the period of
markdown. Ending inventory is therefore valued on the basis of its revenue-producing
potential and may be expected to produce a normal gross profit if sold at prevailing
retail prices in the next period.
8-53
1. a. For its 2021 models, Blaedon should record its inventory at the lower of cost or net
realizable value Because the 2021 models represent a refinement to the prior
year model, it is not likely that the net realizable value is below the cost of the
lawnmower; therefore, inventory would most likely be carried at cost. Blaedon's
inventory cost should include in all necessary and reasonable costs, which may
include design costs, purchase price from contractors, freight-in, and
warehousing costs.
b. Blaedon’s 2020 model inventory should be assigned a carrying amount equal to
the lower of its cost or its net realizable value, which is its current list price reduced
by both its disposition costs and two-thirds of the difference between the $40
allowance given and the carrying amount assigned to trade-ins. The trade-ins’
carrying amount should equal the $25 average net realizable value minus the
profit margin, if any, assigned.
2. a. Using FIFO, Blaedon would assign the earliest lawnmower costs to cost of goods
sold. With rising costs, this would result in matching old, relatively low inventory
costs against current revenues. Net income would be higher than that reported
using certain other inventory methods.
b. Blaedon would assign the latest costs to ending inventory. Normally, the carrying
amount of Blaedon’s FIFO ending inventory would approximate current cost at
December 31, 2020. Retained earnings would be higher than that reported using
certain other inventory methods.
1. The insurance costs on the raw materials while they were in transit from the supplier
should be accounted for as part of inventory. Theoretically, insurance cost on raw
materials in transit is a cost associated with readying the goods for sale.
2. a. Because Hanlon uses the average cost inventory cost flow assumption, it should
use the lower of cost or net realizable value rule. In this instance, net realizable
value is below original cost; therefore, Hanlon’s inventory should bereported at
net realizable value.
b. The lower of cost or net realizable value rule is used to report the inventory in the
balance sheet at an amount that a company expects to receive from selling its
inventory. It also recognizes a decline in the value of inventory in the income
statement in the period in which the decline occurs.
3. Generally, in a period of decreasing purchase prices, ending inventory would have been
higher and cost of goods sold would have been lower had Hanlon used the LIFO cost
flow assumption. Inventory quantities increased and LIFO associates the oldest purchase
prices with inventory. However, in this instance, there would have been no effect on
ending inventory or cost of goods sold had Hanlon used the LIFO inventory method,
because Hanlon’s ending inventory would have been reported at net realizable value
according to the lower of cost or market rule. If a company uses LIFO, market value is
defined as replacement cost. However, market value cannot exceed net realizable
value; therefore, net realizable value is used as market value. Net realizable value of the
inventory is less than either its average cost or LIFO cost.
8-54
1. SHELLY CORPORATION
Computation of Gross Profit Ratio
Sales.............................................................................................. $ 840,000
Cost of goods sold:
Inventory, July 1, 2018 ......................................................... $ 87,500
Purchases .............................................................................. $675,000
Purchases adjustments:
Shipments received in May but recorded
in June ...................................................................... 7,500
Unsalable shipments, no credit memos received
at May 31, 2019 ...................................................... (1,000)
Deposit with vendor, recorded as purchase............ (2,000)
Adjusted purchases to May 31, 2019................................ $679,500
Goods available for sale .................................................... $767,000
Physical inventory, May 31, 2019 ....................................... (95,000)
Cost of goods sold ........................................................ (672,000)
Gross profit ................................................................................... $ 168,000
Gross profit ratio ($168,000/$840,000) ..................................... 20%
2. Computation of Cost of Goods Sold During June 2019

Sales for year ended June 30, 2019 ................................................................... $ 960,000
Less: Sale of rain-damaged shipment................................................................ (10,000)
Net sales.................................................................................................................. $ 950,000
Less: Sales for 11 months ended May 31, 2019 ................................................. (840,000)
Net sales for June 2019 ......................................................................................... $ 110,000
Less: Estimated gross profit at 20% ...................................................................... (22,000)
Cost of goods sold during June .......................................................................... $ 88,000
3. Computation of Inventory at June 30, 2019,

by the Gross Profit Method
Inventory, May 31, 2019........................................................................................ $ 95,000
Purchases to June 30, 2019, per general ledger .............................................. $ 800,000
Adjustments:
Unsalable shipments, no credit memos received at June 30, 2019 ....... (1,500)
Deposit made with vendor and charged to purchases in April, 2019;
product was shipped in July 2019 ......................................................... (2,000)
Cost of rain-damaged shipment ................................................................. (10,000)
Adjusted purchases to June 30, 2019 ................................................................ $ 786,500
Less: Adjusted purchases to May 31, 2019 (from schedule 1) ........................ (679,500)
Adjusted purchases for June ............................................................................... $ 107,000
Goods available for sale during June................................................................ $ 202,000
Less: Cost of goods sold during June (from schedule 2)................................. (88,000)
Inventory at June 30, 2019 ................................................................................... $ 114,000
8-55
1. If the terms of the purchase are FOB shipping point (manufacturer’s plant), Retail
includes in its inventory goods purchased from its suppliers when the goods are shipped.
For accounting purposes, title is presumed to pass at that time.
2. Freight-in expenditures are considered an inventoriable cost because they are part of
the price paid or the consideration given to acquire an asset.
3. Because the cooking utensils were purchased three times during the current year, each
time at a higher price than previously, Retail’s ending inventory would be lower and the
cost of goods sold would be higher using the weighted average cost method instead of
the FIFO method.
4. Because Retail calculates the estimated cost of its ending inventory using the
conventional (lower of cost or market) retail inventory method, net markdowns are
excluded from the computation of the cost ratio and included in the computation of the
ending inventory at retail. Net markdowns are excluded in order to approximate a lower
of cost or market valuation. Excluding net markdowns from the computation of the cost
ratio reduces the cost ratio, which in turn reduces the estimated cost of the ending
inventory.
5. Products on consignment represent inventories owned by Retail, which are physically

transferred to Mall Space Company. Retail retains title to the goods until their sale by Mall
Space Company.
The goods consigned are still included by Retail in the inventory section of its balance
sheet. Retail reclassifies the inventory from regular inventory to consigned inventory. Mall
Space Company, on the other hand, reports neither inventory nor a liability in its balance
sheet.
1. a. Diane’s inventoriable cost includes all costs incurred to get the lighting fixtures
ready for sale to the customer. It includes not only the purchase price of the
fixtures but also the other associated costs incurred on the fixtures up to the time
they are ready for sale to the customer, for example, transportation in.
b. No, administration costs are assumed to expire with the passage of time and not
to attach to the product. Furthermore, administrative costs do not relate directly
to inventories, but are incurred for the benefit of all functions of the business.
2. a. The lower of cost or market rule is used for valuing inventories because the
decline in the market value of the inventories below its cost is recognized as a loss
in the current period. The application of the lower of cost or market rule is a
conservative approach to valuing inventory.
b. The net realizable value less a normal profit margin is used to value the inventories
because market cannot be less than net realizable value less a normal profit
margin (floor). In addition, the net realizable value less a normal profit margin is
less than cost. To carry the inventories at net realizable value less a normal profit
margin provides a means of measuring residual usefulness of an inventory
expenditure.
8-56
C8-7 (concluded)
3. Diane’s beginning inventories at cost and at retail are included in the calculation of the
cost ratio.
Net markdowns are excluded from the calculation of the cost ratio. This procedure
reduces the cost ratio because there is a larger denominator for the cost ratio
calculation. Thus, the concept of balance sheet conservatism is being followed.
1. Hudson should account for the warehousing costs related to its wholesale inventories as
part of inventory. All reasonable and necessary costs of preparing inventory for sale
should be recorded as inventory cost. This approach results in proper matching of the
warehousing costs with revenue when the wholesale inventories are sold.
2. a. The lower of cost or market method produces a more realistic estimate of future
cash flows to be realized from assets, which recognizes the anticipated loss in the
income statement in the period in which the price decline occurs.
b. Hudson’s wholesale inventories should be reported on the balance sheet at
replacement cost. According to the lower of cost or market method, a company
that uses the retail inventory method defines market value as replacement cost.
However, market value cannot exceed net realizable value and cannot be less
than net realizable value less the normal profit margin. In this instance,
replacement cost is below original cost, below net realizable value, and above
net realizable value less the normal profit margin. Therefore, Hudson’s wholesale
inventories should be reported at replacement cost.
3. a. Hudson’s freight-in costs should be included only in the cost amounts to

determine the cost-to-retail percentage.
b. Hudson’s net additional markups should be included only in the retail amounts to
c. Hudson’s net markdowns should not be deducted from the retail amounts to
4. By not deducting net markdowns from the retail amounts to determine the cost-to-retail
percentage, Hudson produces a lower cost-to-retail percentage than would result if net
markdowns were deducted. By applying this lower percentage to ending inventory at
retail, the inventory is reported at an amount below cost, which approximates lower of
average cost or market.
C8-9
Note to Instructor: This case does not have a definitive answer. From a financial reporting
perspective, GAAP is identified and summarized. From an ethical perspective, various issues are
raised for discussion purposes.
8-57
C8-9 (concluded)
From a financial reporting perspective, there are two primary issues. First, if the purchase is made
in the current year, the cost-to-retail ratio (for purchases) will be reduced because of the lower
cost (assuming the retail value of the inventory is not reduced). This lower ratio will result in a
lower cost of the ending inventory and a higher cost of goods sold, thereby lowering gross profit
and causing Kelly more difficulty with top management. The second issue is that there is the
possibility of delaying the purchase, thereby causing an inventory liquidation and “earning” a
LIFO liquidation profit. If management chooses to delay the purchase, then GAAP requires the
additional gross profit to be included in the income statement (and does not allow it to be
ignored as it would be in the quarterly statements if the liquidation was considered to be
temporary).
From an ethical perspective, both issues involve whether management should make decisions
for the purpose of affecting the amount of income that is reported. Obviously management
may, but should it? The primary stakeholders are the company’s current and potential
shareholders and creditors. Kelly has two incentives for delaying the purchase, but the effects
are short-run and will be counterbalanced in the next period. Also, since the LIFO liquidation will
be replaced and management knows it, it may be considered to be a self-promoting decision
that may benefit Kelly and other employees. It may also lead senior management to make
inappropriate promotion and/or pay decisions if they are not aware of the reason for the
additional profit, and may mislead shareholders, although the disclosure of the LIFO liquidation
profit gives them the necessary information. Purchasing three months of inventory also raises
issues of obsolescence and the waste of company resources. Finally, the request to meet for a
drink after work may be an infringement of the employee’s personal time and values.
C8-10
1. Starbucks reported $1,364.0 million of inventory in 2017. It classifies this inventory as

unroasted coffee ($541.0 million), roasted coffee ($301.1 million), other merchandise held
for sale ($301.1 million), and packaging and other supplies ($220.8 million).
2. Starbucks values its inventory at the lower of cost or market. Cost is determined primarily
using the moving average method.
3. Starbucks reports inventory reserves of $38.4 million for 2017. While this amount includes a
write-down to market value for obsolete and slow-moving inventory, it also includes
estimates for inventory shrinkage. While Starbucks does not explicitly disclose whether it
uses the direct or allowance method, the use of an inventory reserve account suggests
that it uses the allowance method.
C8-11
1. LVMH is a diversified company with a variety of inventory types—from alcohol to retail

products. Within its “Wine and Spirits” group, its inventory consists of wine and distilled
alcohol in the process of aging. Popular brands include such champagnes (e.g., Moet &
Chandon, Dom Perignon), wines (e.g., Veuve Clicquot), cognacs, and other spirits. Other
inventory includes products such as fashion and leather goods (Louis Vuitton, Fendi,
Donna Karan, Marc Jacobs), perfumes and cosmetics (Givenchy, Christian Dior),
watches (Tag Heuer, Hublot) and jewelry (De Beers, Chaumet).
8-58
C8-11 (concluded)
2. LVMH values its inventory other than wines at the lower of cost or net realizable value.
Cost is determined using the weighted average cost or FIFO methods. LVMH does not
use LIFO because it is not allowed under IFRS.
3. LVMH values its wine inventories at its harvest market value, which is determined by
reference to the average purchase price of equivalent grapes (Level 2 of the fair value
hierarchy established by IFRS 13), as if the grapes harvested had been purchased
from third parties. Until the date of the harvest, the value of grapes is calculated pro rata
temporis on the basis of the estimated yield and market value. The net effect of using a
market valuation was to decrease cost of sales by €21 million during 2017 and decrease
cost of sales €19 million during 2016 (see Note 10 to the financial statements). Valuation
of this inventory at an amount different from its cost is justified by IAS 41 which allows
agricultural produce that an entity has harvested from its biological assets to be
measured at fair value less costs to sell at the point of harvest. For 2017 and 2016, this is
consistent with a lower of cost or net realizable value adjustment. (Note: If cost of sales
had increased, this would have been consistent with U.S. GAAP that permits certain items
of inventory to be valued above cost.)
4. LVMH records provisions for impairments of inventory generally because of product

obsolescence or lack of sales prospects. LVMH reported net impairments of €339 million,
€377 million, and €316 million in 2017, 2016, and 2015, respectively. (Note: The cumulative
impairment at December 31, 2017, is €1,519 million.) The large write-down in 2017 is
consistent with the weak economy reflected in reduced consumer demand.
ANSWERS TO USING CODIFICATION
C8-12
Note to Instructor: Students are expected to cite references to GAAP in their research of this
issue. While they might use various sources to conduct their research, the FASB Accounting
Standards Codification, which is the primary source of GAAP, is cited.
To: President, Diversified Inc.
From: Student
I have researched the issues related to the application of the lower of cost or market method to
Diversified’s inventory. The first issue is whether the impairment should be evaluated at the total
inventory level, a category level, or at the individual item level. According to accounting
standards FASB ASC 330-10-35-8:
Depending on the character and composition of the inventory, the rule of lower of cost
or market may be properly applied either directly to each item or to the total of the
inventory (or, in some cases, to the total of the components of each major category).
The method should be that which most clearly reflects periodic income.
8-59
C8-12 (concluded)
Because Diversified carries such a wide range of products, I do not feel that the character and
composition of the inventory is such that the decline in market value of the appliances can be
offset against the products of the High Fashion Division. Further, income would be distorted if the
company applied the lower of cost or market rule to the total of the inventory because no loss
would be recognized on the appliances in the current period, when, in fact, that category of
inventory may be impaired. While the segregation of inventory needed to apply the lower of
cost or market analysis is a matter of judgment, I feel that, to most clearly reflect income, the
lower of cost or market method should be applied either on an individual item basis or on groups
of inventory (e.g., grouped by divisions or subcategories within each division).
A second issue is whether the interim write-down of inventory is necessary given that the
inventory value is expected to recover. According to FASB ASC 330-10-35-1 and FASB ASC 330-
10-35-2, inventory should be written down to market value when there is evidence that the
market value of the goods is less than its cost. Further, such write-down should occur in the
period that the loss of market value occurs. However, FASB ASC 270-10-45-6(c) allows an
exception to this rule—temporary market declines do not have to be recognized at the interim
date because no loss is expected to be incurred in the fiscal year. Further clarification is given in
FASB ASC 330-10-55-2 that write-downs due to seasonal price fluctuations are not required. While
this is a matter of judgment, the write-down of the appliance inventory was not due to seasonal
fluctuations. Further, while any recovery during the current year should be considered, the
expected recovery in the subsequent year is not relevant to this analysis. Because the
inventory’s market value declined in the third quarter, any such decline, net of any recovery in
the fourth quarter, should be reflected in the current-period financial statements.
8-60
Another random document with
no related content on Scribd:
— Siinä te erehdyitte. Hertan ääni kuulosti kolkolta. — Minä en
kutsunut teitä itseni tähden. Minä en olisi sitä uskaltanutkaan. Olen
pitänyt teitä ystävänäni, melkein veljenäni, mutta en koskaan ole
unohtanut, että olette toiseen sidottu.
— Älkää tuomitko minua kuulematta. Tiedättehän te itsekin, kuinka

vähän Elli ja minä ymmärrämme toisiamme. Elli tarvitsee toisellaisen
miehen, kuin mitä minä olen, ja minä tarvitsen vaimon, sellaisen kuin
te. Jos te vain rakastaisitte minua, niin te myös ymmärtäisitte.
Hertta istui aivan tyynenä. Mielenliikutus oli kokonaan hävinnyt ja

hän oli aivan kylmä ja tunteeton. Melkein säälivällä katseella hän
tarkasteli Anttia, joka seisoi hänen edessänsä.
— Oletteko te sitten rikkonut välinne Ellin kansa? Hertan ääni oli

kylmä, melkein kova.
Antin otsalle kohosi puna. Lukemattomia kertoja hän oli aikonut

sen tehdä, mutta joka kerta oli hänen syvä kunnioituksensa ja
lämmin tunteensa kenraali Löfbergiin estänyt häntä siitä. Ja sitten
hänen matkansa oli tullut niin äkkiä ja valmistamatta, ettei hän ennen
sitä ollut tilaisuudessa sitä tekemään.
— En ole, hän sanoi, — mutta siitä saakka kun te läksitte tänne,

kävi meidän välimme yhä kireämmäksi. Ellille minä tekisin
suorastaan palveluksen, jos antaisin hänelle vapauden takaisin.
— Älkää sanoko sitä, tohtori Hammar. Naisen tunteet eivät ole

leikkikaluja, tai ainakin ne ovat niin hentoja leikkikaluja, että niihin voi
särö tulla helpommin kuin mitä te aavistattekaan.
Hertta astui ulos huoneesta tyynenä ja vakavana. Antti vaipui alas
tuolille ja peitti kasvonsa käsiinsä.
XVIII.
Antti hiihti yksinänsä eilisiä jälkiä. Taivas oli pilvessä ja ilma raskas ja
sumuinen. Raskaasti suksi liukui eteenpäin lumenpeittämällä
kentällä. Himmeänä siinsi metsä lakeuden toiselta rannalta.
Antin mielikin oli raskas ja alakuloinen. Hänen ruumistaan raukaisi,

koko yön hän oli valveillaan heitellyt itseään vuoteellansa. Tuska ja
epätoivo riehui hänen rinnassansa. Hänen valoisat, riemukkaat
ajatuksensa olivat kadonneet, kaikki hänen toiveensa rauenneet.
Hän tunsi vain haikeaa tyhjyyttä sydämessänsä.
Hänen silmiensä eteen kohosi Hertan kuva, hän näki hänen

jäykän, kylmän katseensa ja kuuli hänen paheksuvan
äänenpainonsa. Antin otsalle kohosi häpeän puna. Oliko hän
todellakin niin kurja, että hän samalla kertaa oli tavoitellut kahden
naisen rakkautta? Ei, sitä hän ei ollut tehnyt. Siitä saakka kuin hän
oli tullut Soimäelle, hän ei ollut ajatustakaan tuhlannut Ellille. Hän eli
kokonaan siinä uudessa ympäristössä, johon hän oli joutunut. Hänen
ajatuksensa kiersivät vain Hertan ympärillä, häntä yksin hän rakasti.
Mutta kaikki oli nyt lopussa.

Antti pysähtyi hetkeksi ja painoi kätensä silmiään vasten. Mitä hän
täällä enää viipyikään. Parasta palata kotiin ja tarttua työhön kiinni.
Työssä hän ehkä löytäisi unhoitusta ja tyydytystä. Sillä työssä, siinä
kuitenkin oli hänen suurin onnensa.
Antti keskeytyi mietteissänsä. Hän kuuli takanaan kulkusen kilinää.

Rouva Korhonen istui reessä ja tervehti iloisesti tullessaan Antin
kohdalle.
— Hyvää päivää, tohtori Hammar. Ettekö tahdo tulla mukaan

ajamaan?
Antti kieltäytyi. Hän oli tavannut rouva Korhosen jonkun kerran

kirkonkylässä, kun tämä oli mennyt turvakotiin opetustunneillensa.
Mutta tulirokon vuoksi heidän oli täytynyt karttaa toisiansa.
— Minä hiihdän mielelläni ja ehkä on myös varovaisempaa, että

pysyn teistä loitommalla, hyvä rouva. Oletteko menossa järven tuolle
puolelle, sairaan vaimon luo?
— Olen kyllä. Minä vien hänelle hiukan ruokaa ja vaateapua.

Ihmisparat, koettelemus tuntuu joskus liian kovalta.
— Minäkin aion käydä kuulustelemassa hänen vointiaan.
— Jäikö neiti Ek kotiin? kysyi rouva Korhonen, ja hänen äänensä

sointui hiukan omituiselta.
— Hän oli väsynyt eilisestä.
Rouva Korhonen ajoi edelleen. Antti katsoi hänen jälkeensä,

häneltä ei jäänyt huomaamatta rouva Korhosen äänen sointu.
Olisiko hän ehkä saattanut Hertan kieroon valoon, ja läsnäolonsa
kautta tuottanut hänelle ikävyyksiä? Hän ei ollut kertaakaan tullut
ajatelleeksi mitä maailma voisi heistä sanoa, ja itsensä suhteen se
olikin hänelle yhdentekevää. Mutta Hertan maine, se ei saisi hänen
kauttansa kärsiä.
Ei, hän lähtisi pois, mitä pikemmin sitä parempi.
Antti saapui rantaan. Mökin edustalla seisoi hevonen. Ovessa tuli

rouva
Korhonen häntä vastaan.
— Hän on hyvin heikko, vaimo parka. Teitä hän tuntui kaipaavan.
Antti astui tupaan. Vaimo makasi entisellä sijallaan lattialla ja

vieras nainen hääri takan luona. Antti kumartui sairaan puoleen. Hän
makasi kuumeessa, silmät puoleksi ummessa.
— Jos hyvä Jumala korjaisi minutkin, sanoi vaimo hiljaisella

äänellä. —
Minä olen valmis kuolemaan.
— Kyllä te paranette, sanoi Antti rohkaisevasti. — Ajatelkaa

miestänne, joka on aivan avuton. Mitenkä hän ilman teitä tulisi
toimeen?
Vaimo nyökkäsi päätään.
— Elämä on niin raskas, mutta ehkä Jumala eteenpäin auttaa. Ja

aina niitä on hyviä ihmisiäkin, jotka armahtavat köyhääkin.
— Maatkaa nyt aivan rauhassa. Emäntä tuolla on luvannut olla

teidän luonanne, siksi kuin paranette. Te ette saa nousta pystyyn,
ennenkuin olette aivan terve.
Antti antoi määräyksensä vaimolle, joka hääri takan ääressä ja
selitti miten sairasta oli hoidettava. Sitten hän läksi takaisin
hiihtämään. — —
Turvakodissa oli pöytä katettuna, kun hän astui sisään. Hän ei ollut
nähnyt Herttaa koko päivänä.
He istuivat ääneti pöytään. Antille ei ruoka maistunut. Hän istui

vain ja käänteli hermostuneesti lusikkaa kädessänsä ja oli vaiti.
Hertan katse oli alas kääntyneenä ja hänen kasvoissaan oli
kiusaantunut ilme.
Vihdoin Antti keskeytti äänettömyyden.
— Neiti Ek, minä lähden täältä huomenna. Se on parempi meille

molemmille.
Hertta nosti katseensa Anttiin. Se oli vakava ja luja.
— Mutta jos minä pyytäisin teitä jäämään vielä muutamaksi

päiväksi — —
— Mitä te tarkoitatte? sanoi Antti kiihkeästi.
— Ei minun tähteni, tohtori, — vaan lasten. Koettakaamme

unohtaa itsemme ja ajatella vaan sitä työtä, joka meidän
edessämme on.
— Teidän on hyvä sanoa, teidän, neiti Ek. Mutta jos te tietäisitte

kuinka tuskallinen minun tilani on, niin te ette sitä pyytäisi. Te
tietenkään ette voi sille mitään, että olette kylmä ja tunteeton, enkä
minä tahtoisikaan kerjätä teiltä sitä, mitä te ette vapaaehtoisesti voi
antaa. Sillä siinähän rakkauden suuruus juuri onkin, ettei se harkitse
eikä arvostele mitään, se ottaa vain ja antaa aivan sokeasti.
— Miksikä te ette tahdo olla minun ystäväni, tohtori Hammar?

Hertan ääni oli melkein rukoileva.
— Sentähden että minä olen mies, eikä ystävyys minua yksin

tyydytä.
Ystävyys ja rakkaus eivät ole ystäviä.
— Mutta jos te lähdette — ja tietysti te lähdetiekin, enhän minä

tahdo teitä pidättää, — niin minä jään yksin sairaitteni kanssa. Minä
tunnen, että jotain on tulossa, en voi edes selittää mitä se on, mutta
se peloittaa minua. Se kohoaa tuskana minun rinnassani ja yöllä se
on tukahduttaa minut.
— Oletteko te sairas, neiti?
— En tiedä sitä itsekään. Mutta eihän se merkitse mitään.

Lähtekää te vain huoleti.
Antti nousi ylös. Hän astui hetken aikaa edestakaisin huoneessa,

hänen kasvonsa ilmaisivat taistelua.
— No hyvä, sanoi hän päättäväisesti ja pysähtyi Hertan eteen, —

minä jään vielä joksikin ajaksi. Ojentakaa minulle kätenne, Hertta
neiti, minä tahdon olla ystävänne ja osoittaa että ansaitsen teidän
luottamustanne.
Hertta ojensi hänelle kätensä. Antti puristi sitä lujasti ja lämpimästi

ja kiiruhti sitten ulos huoneesta. Hertta katsoi hänen jälkeensä.
Rinnasta kohosi nyyhkytys ja hän purskahti itkuun.
XIX.
— Tänä yönä minä valvon lasten luona, sanoi Antti vakavalla ja

varmalla äänellä. — Te turmelette terveytenne, neiti, ja sitä minä en
voi sallia.
— Älkää huoliko minusta. Kyllä minä vielä kestän. Mutta Hertan

uupunut ääni puhui aivan hänen omia sanojaan vastaan.
Lasten tila turvakodissa oli taaskin huonontunut. Uusia sairaita oli

tullut entisten lisäksi ja muutamien tauti oli saanut vaarallisen
käänteen. Hertta oli uskollisesti öisin valvonut heikompien luona ja
päivin hoitanut heitä. Aika-ajoin hän oli tuntenut suurta väsymystä ja
uupumusta, mutta hän ei tahtonut sitä myöntää, ei edes itsellensä.
Mutta hänen kalpeat poskensa ja väsyneet silmänsä olivat ilmaisseet
hänet.
— Nyt te tulette ainakin vähäksi aikaa ulos kävelemään, sanoi

Antti. — Lapset eivät tarvitse teitä tällä hetkellä ja te tulette itsekin
sairaaksi, jos ette suostu edes raitista ilmaa hengittämään.
Sairastumista oli Herttakin pelännyt. Hänen päätänsä huimasi, kun

hän astui huoneen lattian yli eikä ruoka maistunut. Hän nousi ylös.
Hän otti palttoon päällensä ja astui ulos. Ulkona lumi häikäisi hänen
silmiänsä, jotka päiväkausiin eivät olleet nähneet muuta kuin
sairashuoneen harmaita seiniä. Hän tunsi äkillistä pyörtymystä,
maailma musteni hänen silmissään ja hän tarttui käsikaiteesen kiinni.
Vaivoin hän sai pysytellyksi pystyssä.
— Voitteko huonosti? kysyi Antti, joka kiiruhti hänen jälkeensä.
— Hiukan pyörtymystä vain, kyllä se pian menee ohi, sanoi Hertta.

—
Viime päivinä olen tuntenut sitä usean kerran.
Hän koetti astua portaita alas, mutta horjahti uudelleen.
Antti tarttui häntä käsivarteen kiinni ja talutti hänet sisään. Hertta

vaipui tuolille istumaan.
— Te olette täydessä kuumeessa, sanoi Antti koetellen hänen

valtasuontansa. — Parasta on että panette maata. Te olette
rasittanut itseänne liiaksi.
Hertta laskeutui vuoteelleen. Hän oli niin uupunut ja voimaton, että

tuskin jaksoi kättänsä liikuttaa. Päätä särki ja korvat humisivat. Hän
ummisti silmänsä ja vaipui puolihorrokseen. Hänestä tuntui ikäänkuin
hän äkkiä olisi joutunut pyörteesen, joka kuljetti häntä yhä
kauemmaksi alas pohjattomaan syvyyteen.
Äkkiä hän havahtui. Antti seisoi hänen vuoteensa ääressä. Hänen

kasvoissaan oli huolestunut ilme. Hän ojensi hänelle kupin.
— Juokaa tämä, hän sanoi — jos te olette vain vilustunut, niin se

menee piankin ohitse.
Hertta nousi puoleksi istualleen vuoteessaan ja maisteli kuumaa
juomaa.
— Minun on niin vaikea saada sitä alas, sanoi hän hetken kuluttua
ja rykäisi. — Minun kurkkuni tuntuu niin karhealta.
Antti säpsähti.
— Onko se jo kauan tuntunut kipeältä?
— Ei, nyt vast'ikään.
Antti tutki hänen kurkkuansa.
— Se punoittaa hiukan toisella puolella, mutta ehkä se on vain

jotain satunnaista.
Hertta vaipui takaisin vuoteelle. Hän ojensi kätensä Antille.
— Hyvää yötä, antakaa minun nyt nukkua. Minä olen niin väsynyt.
— Jos te tarvitsette yöllä jotain, niin soittakaa kelloa.
Antti seisoi vielä hetken aikaa Hertan vuoteen ääressä. Hän ei

voinut irroittaa katsettansa hänestä. Siitä saakka kuin hän oli
luvannut jäädä hänen luoksensa ja ystävänä auttaa häntä hänen
työssänsä, oli Antin käytös kokonaan muuttunut. Hän ei koskaan
pienimmälläkään sanalla tai katseella viitannut siihen kohtaukseen,
mikä heidän välillään oli ollut, hän hillitsi itsensä siihen määrään,
ettei kukaan olisi voinut aavistaakaan hänen todellisia tunteitaan.
Hänen käytöksensä oli vakava ja hänen puheensa liikkui aina
asiallisilla ja välttämättömillä aloilla. Mutta nyt, kun Antti seisoi yksin
Hertan vuoteen ääressä ja näki hänet edessänsä kalpeana ja
voimattomana, silmät kiinni painuneina, niin hänen
itsehillitsemisensä loppui. Hänen rinnassaan pääsi voimakas tunne
valloillensa, joka rikkoi kaikki sulut ja esteet. Ja hän heittäytyi
polvilleen vuoteen ääreen ja painoi polttavat silmänsä sen reunaa
vasten.
Mutta äkkiä kohosi Antin eteen kuva selväpiirteisenä ja varmana.

Hän näki pojan kaukana metsätorpassa makaavan kuumeissaan
kovalla penkillänsä. Hän kuuli korisevan äänen kohoavan hänen
rinnastaan ja näki hänen taistelevan tukehtumista vastaan. Ja hän
näki Hertan kannattavan häntä käsivarsillansa ja kumartuvan hänen
ylitsensä.
— Hyvä Jumala, sanoi hän puoliääneen — voisiko se olla

mahdollista?
Hän nousi ääneti ylös polvistuneesta asennostaan ja astui hiljaa

ikkunan luo. Hän peitti kasvonsa käteensä ja koko hänen ruumiinsa
vapisi valtavan liikutuksen vallassa. Syvä nyyhkytys kohosi rinnasta
ja hän puri hampaansa yhteen hillitäkseen itkun purskahdusta.
Olisiko mahdollista, että Hertta olisi saanut tartunnan

metsätorpasta, että hän itse olisi joutunut sen taudin uhriksi, jota
vastaan hän niin rohkeasti oli taistellut? Ei, se ei voinut olla
mahdollista, kohtalo ei saanut olla niin kova. Se oli vain Antin
kiihoittuneen mielikuvituksen harhakuva, kaikki esiintyi hänelle vain
niin mustana ja synkkänä.
Hertta makasi hiljaa ja liikkumatta vuoteellansa. Antti hiipi

varpaillansa ulos. Ilma huoneessa oli tukehduttaa hänet.
XX.
Hertta havahtui unestansa. Hänen ympärillään vallitsi täydellinen

pimeys. Pää oli niin painava, ettei hän jaksanut sitä kohottaa
tyynyltä, Kurkku oli kuiva ja hänestä tuntui ikäänkuin jotain paksua ja
karheaa olisi siihen tarttunut. Hän rykäisi, hän koetti niellä alas tuon
palan, joka vaikeutti hänen hengitystänsä, mutta se ei poistunut ja
hän tunsi vain kipua. Tuska hänen ruumiissaan yhä yltyi ja kuume
poltti hänen jäseniänsä.
Pimeys hänen ympärillään vaivasi häntä. Hän ponnisti

näköhermojansa, nähdäkseen pimeyden läpi, eroittaakseen esineitä
hänen ympärillään. Mutta hänen ponnistuksensa oli turha. Ja
voimattomana, tuskasta läähättäen hän ummisti taas silmänsä.
Hertta säpsähti ja kohotti päänsä ylös. Hän oli kuulevinaan hiljaista

huminaa ympärillään, hän oli tuntevinaan että jokin häntä lähestyi
yhä likemmäksi ja likemmäksi. Se painoi häntä vasten rintaa, se yritti
peittää hänet kokonaan ja tukehduttaa hänet painonsa alle. Hertta
kohotti torjuvasti kätensä ylös, ne koskettivat vain tyhjää ilmaa, ja
laskeutuivat takaisin peitteelle.
Hertta painoi kätensä ristiin. Hän koetti rukoilla, mielessään
muistella lapsuuden aikuisia rukouksiansa. Mutta hän ei löytänyt
sanoja. Hän ponnisti muistiansa epätoivoisesti, mutta kaikki oli
kadonnut.
— Herra Jumala, toisti hän vain kerran toisensa perästä.
Jäätävä tyhjyys sai vallan hänen sydämessänsä. Kuinka yksin ja

hyljätty hän oli. Yksin, keskellä kammottavaa pimeyttä. Ilman
ystävää, ilman ainoatakaan lämmittävää tunnetta. Jos nyt kuolema
tulisi — Herttaa värisytti, hänen hampaansa kalisivat ja tuskan hiki
valui otsalle.
Voisiko kuolema tulla ja temmata hänet pois elämästä, ennenkuin

hän oli saanut elämää tunteakkaan? Voisiko se olla niin armoton ja
riistää hänet keskeltä nuoruuden kevättä? Ei, hän ei tahtonut kuolla,
hän tahtoi vielä nauttia elämästä, ja tuntea vaikka yhden ainoan
kerran sen hurmaavaa syleilyä.
Aamuhämärä laskeutui hiljaa huoneesen. Harmaana ja

salaperäisenä se kietoutui jokaisen esineen ympäri, laajensi niiden
rajapiirteitä ja himmensi niiden muotoja. Liikahtamatta tuijotti Hertta
eteensä. Hän tunsi vuoroin kylmänväreitä ruumiissansa, vuoroin
kuumotus kohosi hänelle päähän.
Yksinäisyyden tunne sai hänessä yhä suuremman vallan.
Mutta oliko hän sittenkään niin yksin? Olihan hänellä isä, joskin
kaukana ja äiti vieläkin kauempana. Mutta hän tunsi hänen
läheisyytensä, tunsi sen siinä ilmassa, joka häntä ympäröi ja siinä
huminassa, joka hänen korviinsa kuulosti. Hertta hymyili. Hänen
kasvonpiirteensä rauhoittuivat ja hän katsoa tuijotti eteensä ja teroitti
kuulohermojansa. Hänen mielikuvansa yhä kasvoi ja sen muodot
selvenivät.
Hän näki edessään silmät, jotka hellästi häneen katsoivat ja

hymyilevät huulet; hän kuuli äänen häntä kutsuvan. Hertan
sydämeen virtasi lämmin tunne, hän ojensi kätensä ja hänen
huuliltaan tunkeutui heikko kuiskaus. Kuinka tutut nuo silmät hänelle
olivat, tuo vakava, hellä katse. Mutta voisivatko nuo olla äidin, ei,
sellaiseksi hän ei ollut häntä kuvitellut, ne olivat vieläkin tutummat ja
läheisemmät.
Hertta painoi kätensä silmiänsä vasten. Mikä voimakas tunne se

äkkiä hänen sydämensä valtasi, kuinka kiihkeästi veri hänen
suonissaan virtasi. Niin, hän se oli, Antti, hän tunsi nuo silmät, hän
tunsi tuon korkean otsan. Kuinka sokea hän oli ollut, kuinka vähän
hän oli ymmärtänyt omaa itseänsä.
Hän rakasti Anttia. Tuhatäänisenä sävelenä tuo tunne kajahteli

häntä vastaan, ja täytti ilman hänen ympärillään. Hurmaava onni
tunkeutui hänen sydämeensä, hän ei ollut yksin, hänen ei tarvinnut
kuolla yksin, kaukana kotoansa ja hyljättynä. Kuollako? Ei, elää hän
nyt tahtoi, elää ja olla onnekas.
Hertta hypähti istualleen. Hänen kurkkunsa puristautui kokoon,

ikäänkuin joku olisi tahtonut kuristaa häntä, hän koetti tuskissansa
hengittää ja kädet puristautuivat nyrkkiin. Voimattomana hän vaipui
takaisin tyynylle. Hän makasi hetken aikaa läähättäen.
Ovi raoittautui varovasti. Antin kalpeat kasvot näkyivät ovessa.

Hän kiiruhti nopeasti Hertan vuoteen luo ja kohotti hänet pystyyn.
— Minä tunnen sen tulevan, sen suuren ja kammottavan — —
pelasta minut,
Antti, älä anna sen riistää minua.
Ääni oli käheä ja tuskallinen.
Antti tarkasteli Hertan kurkkua. Se oli paisunut ja limainen ja

valkoiset täplät kohosivat veripunaiselta pinnalta. Ei epäilystäkään
enää taudin laadusta. Tartunta oli metsätorpasta tullut ja tauti
puhjennut täyteen voimaansa.
Antti haki lääkettä ja siveli kurkun sisäpuolta. Hertta päästi

valittavan äänen ja nojautui Anttia vasten.
Vähitellen hengitys rauhoittui ja silmät painuivat umpeen. Antti

hyväili hellästi hänen suortuviaan. Hän katseli lakkaamatta noita
kalpeita kasvoja, joissa tuska vielä väreili. Suu oli puoleksi auki,
huulet aivan verettömät.
Sanaton tuska valtasi Antin sydämen. Pitäisikö hänen

voimattomana taipua kohtalon tahdon alle, pitäisikö hänen antaa
kuoleman riistää saaliinsa? Ei, tuhat kertaa ei! Mutta missä oli hänen
taitonsa, missä ne keinot, joilla hän karkoittaisi uhkaavan vihollisen?
Hänen päätänsä pyörrytti, hän ei voinut ainoatakaan selvää ajatusta
ajatella, hän ei voinut tuntea muuta kuin huumaavaa tuskaansa.
Hertta avasi silmänsä. Hän loi kirkkaan, syvän katseensa Anttiin ja

kuiskasi hiljaa:
— Antti!
Äänen värähdys oli hempeän arka.

Äkillinen riemun tunne tärisytti Antin ruumista. Hänen silmänsä
säihkyivät. Molemmin käsivarsin hän tarttui Hertan hentoon
vartaloon ja sulki hänet voimakkaasen syleilyynsä. Ja hänen
huulensa painuivat Hertan huulia vasten.
Hän päästi hänet irti vasta sitten, kun Hertta kalpeana ja

voimattomana antoi kätensä vaipua alas Antin kaulasta.
Kauan aikaa he olivat sanattomina. Antti laski Hertan tyynyjen

varaan.
Hänen rintansa kohosi ja laski rauhattomasti ja hengitys oli raskas

ja tuskallinen. Mutta kasvoja kirkasti rauhallinen, tyyni ilme. Hellästi
hän siveli kädellään Antin tukkaa ja korkeata otsaa. Antti oli
polvillaan vuoteen ääressä.
— Armaani, oma armaani!
— Se selvisi minulle aivan äkkiä, sanoi Hertta melkein kuiskaten.

— Minä taistelin kauan sitä vastaan, tietämättäni mitä vastaan minä
taistelin. Minä uhmailin rakkautta, sillä minä tahdoin olla voimakas, ja
luottaa vain omaan itseeni. Mutta yöllä, kun minä heräsin, ja äkkiä
tunsin kuoleman tuskan lähestyvän, niin minun oma voimani tuntui
niin heikolta ja mitättömältä. Minä olin niin yksin, niin kammottavan
yksin.
Hertta vaikeni. Puhuminen rasitti häntä.
— Älä puhu, Hertta. Minä ymmärrän sinua. Minä tiesin sen

tulevan, minä tunsin sen niin voimakkaasti. Ja nyt sinä olet minun,
yksin minun omani.
— Niin, Antti, minä näin sinut edessäni ja sinun lempesi, se
syöksyi minun sydämeeni voimakkaana ja täysiäänisenä. Se riisti
minut mukanansa ja minä tunsin silloin että rakastin sinua. Minä olen
kauan sinua rakastanut, vaikka en ole sitä itse tietänyt…
Antti suuteli Hertan kättä. Se oli valkoinen ja läpikuultava.

Hervottomana se lepäsi hänen kädessänsä.
— Antti, — hänen korvaansa hiveli melkein kuulumaton henkäys,

— sano ettei minun tarvitse kuolla, sano että minä saan elää sinulle
ja sinun kanssasi. Katsos, minä olen vielä nuori ja minä halajan
rakkautta — —
— Älä pelkää, kultani, Antti hyväili häntä, — ei sinun tarvitse

kuolla, meidän rakkautemme on voimakkaampi kuin kuolema.
— Ei, minä näen sen tulevan, minä tunnen jo sen kylmän

henkäyksen.
Lämmitä sinä minua, älä päästä sitä luokseni.
Hertta heittelihen vuoteellaan tuskissansa. Läähättäen hengitys

kulki hänen kurkussansa.
— Älä anna sen tukehduttaa minua!
Antti kohotti päänalusta, niin että Hertta joutui melkein istuvaan

asentoon.
— Onko sinun nyt helpompi olla, armaani? Hetkeksi tuska näytti

laimenneen ja Hertta makasi hiljaa tyynyjen nojassa.
Antti istui ääneti kumartuneena vuoteen yli. Tuskanhiki valui hänen

otsallansa. Hän koetti keskittää kaikki ajatuksensa yhteen kohtaan,
hän tahtoi lujalla tahdon voimallaan sotia tautia vastaan. Hänen
täytyi se voittaa, hänen täytyi pelastaa armaansa.
Mutta kesken hänen varmuuttansa hiipi epäilys hänen rintaansa.

Se kasvoi ja kasvoi yhä valtavammaksi ja kammottavana aaveena
se astui hänen eteensä. Jos kuolema todellakin tulisi ja vaatisi
häneltä hänen onnensa, jonka hän vasta oli saavuttanut. Jos se
riistäisi hänen sylistään morsiamen, ennen kuin se oli hänen
omansakaan ollut. Ei, se ei saanut tapahtua, hän kilvoittelisi
kuoleman kanssa, hän puolustaisi omaansa viimeiseen asti.
Nyyhkyttäen vaipui Antti polvilleen vuoteen ääreen.

XXI.
Päivä oli jo kulunut iltapuoleen. Pimeän varjot peittivät maata ja

kalpeana kuu kohosi taivaan laelle. Sen hopeasäteet tunkeutuivat
hienojen ikkunauudinten läpi huoneesen ja laskeutuivat Hertan
vuoteelle. Hänen kalpeat kasvonsa olivat vieläkin kalvakkaammat ja
silmissä loisti kirkastunut ilme. Kasvonpiirteet olivat rauhalliset ja
tyynet.
Hertta liikahti vuoteellansa.
— Antti, minä näin ihmeellisen unen, — Hertta puhui katkonaisesti

ja ääni oli aivan kuiskaava. — Olin mielestäni pieni lapsi ja lepäsin
äitini sylissä.
Hänen sylinsä oli niin lämmin ja pehmeä. — —
Mutta minun ympärilläni seisoivat kaikki pienet lapset — — he

ojensivat minulle kätensä — — ja he värisivät vilusta — — ja
kyyneleet vierivät heidän poskillansa — — Älä jätä heitä, Antti — —
—
Hertta vaipui läähättäen alas tyynylle. Kasvon piirteet vääntyivät ja

hän kouristi käsiänsä. Antti kohotti hänet pystyyn, koko hänen
ruumiinsa vapisi pelosta ja tuskasta.
— Armaani, armaani — —
Hertan huulet liikkuivat tuskallisesti ja hän tarttui Anttiin kiinni.
— Minä menen sitä suurta muutosta kohti, Antti — — elämää kohti

— — me tapaamme toisemme — — rakkaudessa — —
Rinta kohosi raskaasti, suonet pullistuivat kaulassa ja kurkku

korisi. Kauhu kuvastui hänen silmissänsä ja kasvot mustuivat.
Hetken aikaa väin ponnisteli ruumis kuolemata vastaan, sitten painui
pää hervottomana tyynylle ja kädet vaipuivat alas.
— Hertta, Hertta! Antti tarttui häneen kiinni. Hän suuteli häntä, hän
hyväili häntä, hän kutsui häntä hellimmillä sanoilla.
Hertan silmät katsoivat jäykästi häneen, suu oli puoleksi auki ja

pää taaksepäin koholla.
Antti laski hänet vuoteelle. Hän painoi silmäluomet kiinni ja asetti

kädet ristiin rinnalle. Kuu valaisi hänen mustia suortuviaan, jotka
valuivat alas hänen olkapäilleen ja paljaalle kaulallensa.
Yliluonnollinen rauha oli karkoittanut tuskan jäljet hänen
kasvonpiirteistänsä. Hän uinui kuin lapsi unen helmassa, viattomana
ja puhtaana.
Antti seisoi vuoteen ääressä ja katseli lakkaamatta häntä. Hänestä

tuntui kuin elämä äkkiä olisi pysähtynyt kulussansa, kuin kaikki olisi
hiljennyt ja vaiennut. Hän ei tuntenut muuta kuin pohjatonta tyhjyyttä
ympärillänsä. Hänen polvensa hervottuivat, koko hänen ruumiinsa
vapisi. Hän lyyhistyi kokoon vuoteen jalkapuolelle ja hänen päänsä
vaipui alas hänen käsiinsä. Epätoivon tuska kohosi hänen

(Download PDF) Intermediate Accounting Reporting and Analysis 3rd Edition Wahlen Solutions Manual Full Chapter

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

(Download PDF) Intermediate Accounting Reporting and Analysis 3rd Edition Wahlen Solutions Manual Full Chapter

Uploaded by

Copyright:

Available Formats

Intermediate Accounting Reporting and

Analysis 3rd Edition Wahlen Solutions

Intermediate Accounting Reporting and Analysis 3rd

Intermediate Accounting Reporting and Analysis 2nd

Intermediate Accounting Reporting and Analysis 1st

Intermediate Accounting Reporting and Analysis 1st

Intermediate Accounting Reporting And Analysis 2017

Financial Reporting Financial Statement Analysis and

Financial Reporting Financial Statement Analysis and

Financial Reporting Financial Statement Analysis and

Inventories: Special Valuation Problems

CONTENT ANALYSIS OF END-OF-CHAPTER ASSIGNMENTS

P8-13 Errors Impact of errors on 6 Moderate 20 Analytic Measurement Application

1. There is an inability to determine appropriate costs.

8-21 O = Overstated; U = Understated; NE = No Effect; CY = Current Year; SY = Succeeding

(a) (b) (c) (d)

Balance Sheet: Ending inventory O NE NE NE U NE U NE

1. b NRV = $100 – $5 – $10 = $85

(a) The NRV is computed as:

Product 1 Product 2 Product 3

Cost Market (NRV) Carrying Value

2019 Cost of Goods Sold .......................................................... 14,000*

2019 Loss on Write-Down of Inventory .................................... 14,000*

Cost of goods available for sale ................................................. $125,000

Cost-to-retail ratio (for purchases): $75,000/$193,000* = 0.389

Cost-to-retail ratio: ($35,000 + $75,000)/($92,000 + $200,000 + $15,000 – $22,000) = 0.386 (rounded)

Cost-to-retail ratio (for beginning inventory): $35,000/$92,000 = 0.380 (rounded)

Cost-to-retail ratio: $110,000/$307,000* = 0.358

*$92,000 + $200,000 + $15,000

Ending inventory at retail = $107,000

Ending inventory retail at base-year price:

Inventory change at retail base-year price:

Inventory at retail in base-year price conversion to current-year retail price:

Year-end LIFO inventory:

2019 Income Summary ............................................................. 300,000

2019 Income Summary ............................................................. 300,000

Loss Due to Inventory Write-Down ................................. 14,000*

The net realizable value is computed as follows:

Product Cost Net Realizable Value

Replacement Net Realizable Net Realizable Value Less

2. For Product A, the use of a “floor” constraint prevents an excessive write-down of

1. a. Lower of Cost Inventory

c. Product Units Cost NRV

Beginning inventory $ 170,000

E8-8 [AICPA Adapted]

The following formulas are useful in solving this problem:

Gross Profit on Cost of Goods Sold

Beginning inventory ............................................................................. $ 38,000

E8-12 [AICPA Adapted]

There is an $11,000 increase in retail inventory at base-year prices ($40,000 – $29,000).

Ending inventory at cost: $29,000 × 0.69 = $20,000*

Ending inventory at cost: $120,000 × 0.625 = $ 75,000

There is a $100,000 increase in retail inventory in base-year prices ($600,000 – $500,000).

Ending inventory at cost: Beginning inventory = $360,000

E8-18 [AICPA Adapted]

Net income before adjustments ............................................................................ $20,000

If the LCNRV rule is applied to individual items:

2. U.S. GAAP: LIFO Cost Flow Assumption Used

If the lower of cost or market rule is applied to individual items:

If the lower of cost or market rule is applied to individual items:

No other entry is necessary because the inventory is valued at cost.

1. Inventory, July 1, 2019 .......................................................................... $ 55,300

P8-5 [AICPA Adapted]