a. At December 31, Software City takes a physical inventory and finds that all 18 units of WordCrafter are on hand. However, the current replacement cost (wholesale price) of this product is only $255 per unit. Prepare the entries to record: 1. This write-down of the inventory to the lower-of-cost-or-market at December 31. (Company policy is to charge LCM adjustments of less than $2,100 to Cost of Goods Sold and larger amounts to a separate loss account.) 2. The cash sale of 15 WordCrafter programs on January 9, at a retail price of $355 each. Assume that Software City uses the FIFO flow assumption. b. Now assume that the current replacement cost of the WordCrafter programs is $400 each. A physical inventory finds only 18 of these programs on hand at December 31. (For this part, return to the original information and ignore what you did in part a. ) (b) A recent annual report of Kraft Foods, Inc., reveals the following information (dollar amounts are stated in millions): Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,651 Inventory (beginning of year) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,506 Inventory (end of year). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,096 Average time required to collect accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 45 days a. Compute Kraft’s inventory turnover for the year (round to nearest tenth). b. Compute the number of days required by Kraft to sell its average inventory (round to the nearest day). c. What is the length of Kraft’s operating cycle? d. What comparative information would you want to be able to evaluate Kraft’s operating cycle figure?
Late in the year, Software City began carrying WordCrafter, a new word processing software
program. At December 31, Software City’s perpetual inventory records included the following
cost layers in its inventory of WordCrafter programs:
Purchase Date Quantity Unit Cost Total Cost
Nov. 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 $400 $3,200
Dec. 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 310 6,200
Total available for sale at Dec. 31 . . . . . . . . . . . . . . . . 28 $9,400
a. At December 31, Software City takes a physical inventory and finds that all 18 units of
WordCrafter are on hand. However, the current replacement cost (wholesale price) of this
product is only $255 per unit. Prepare the entries to record:
1. This write-down of the inventory to the lower-of-cost-or-market at December 31. (Company
policy is to charge LCM adjustments of less than $2,100 to Cost of Goods Sold and
larger amounts to a separate loss account.)
2. The cash sale of 15 WordCrafter programs on January 9, at a retail price of $355 each.
Assume that Software City uses the FIFO flow assumption.
b. Now assume that the current replacement cost of the WordCrafter programs is $400 each. A
physical inventory finds only 18 of these programs on hand at December 31. (For this part,
return to the original information and ignore what you did in part a. )
(b)
A recent annual report of Kraft Foods, Inc., reveals the following information (dollar amounts
are stated in millions):
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,651
Inventory (beginning of year) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,506
Inventory (end of year). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,096
Average time required to collect
a. Compute Kraft’s inventory turnover for the year (round to nearest tenth).
b. Compute the number of days required by Kraft to sell its average inventory (round to the
nearest day).
c. What is the length of Kraft’s operating cycle?
d. What comparative information would you want to be able to evaluate Kraft’s operating cycle figure?
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