6th Edition

ISBN: 9781260685978

Author: PHILLIPS

Publisher: MCGRAW-HILL CUSTOM PUBLISHING

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Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…

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Textbook Question

Chapter 7, Problem 11E

Reporting Inventory at Lower of Cost or Market/Net Realizable Value

Peterson Furniture Designs is preparing the annual financial statements dated December 31. Ending inventory information about the five major items stocked for regular sale follows:

Chapter 7, Problem 11E, Reporting Inventory at Lower of Cost or Market/Net Realizable Value Peterson Furniture Designs is

Required:

1. Complete the table column “Write-Down per Item” and then sum the final column to compute the amount of the total write-down when the LCM/NRV rule is applied to each item.
2. Prepare the journal entry Peterson Furniture Designs would record on December 31 to write down its inventory to LCM/NRV.

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Chapter 7, Problem 10E

Chapter 7, Problem 12E

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JH, Inc., is a calendar year, accrual basis corporation with Joe as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, JH Corporation has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation’s current E & P is $50,000. On November 1, JH distributes an office building to Joe. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000. Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes. What are the tax consequences of the distribution to JH and to Joe? (In your answer, be sure to describe the effects on taxable income for both JH and Joe, the impact of the distribution on JH’s E & P, and Joe’s basis in the building.)

Joe is the sole shareholder of JH Corporation. Joe sold his stock to Ethan on October 31 for $150,000. Joe’s basis in JH stock was $50,000 at the start of the year. JH distributed land to Joe immediately before the sale. JH’s basis in the land was $20,000 (fair market value of $25,000). On December 31, Ethan received a $75,000 cash distribution from JH. During the year, JH has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000. Which of the following statements is true? a. Joe recognizes a $110,000 gain on the sale of his stock. b. Joe recognizes a $100,000 gain on the sale of his stock. c. Ethan receives $5,000 of dividend income.d. Joe receives $20,000 of dividend income. e. None of the above.

Chapter 7 Solutions

CONNECT CODE F/FINANCIAL ACCOUNTING

Ch. 7 - What are three goals of inventory management?Ch. 7 - Describe the specific types of inventory reported...Ch. 7 - The chapter discussed four inventory costing...Ch. 7 - Which inventory cost flow method is most similar...Ch. 7 - Where possible, the inventory costing method...Ch. 7 - Contrast the effects of LIFO versus FIFO on ending...Ch. 7 - Contrast the income statement effect of LIFO...Ch. 7 - Several managers in your company are experiencing...Ch. 7 - Explain briefly the application of the LCM rule to...Ch. 7 - Prob. 10Q

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Solution Summary: The author explains how the lower-of-cost-or-market method requires the reporting of the ending merchandise inventory in the financial statement of a company, at its current market value or at is historical cost price.

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