Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 8, Problem 8.7BYP
Ethics Case 8–7
Profit manipulation
• LO8–4
In 2017 the Moncrief Company purchased from Jim Lester the right to be the sole distributor in the western states of a product called Zelenex. In payment, Moncrief agreed to pay Lester 20% of the gross profit recognized from the sale of Zelenex in 2018.
Moncrief uses a periodic inventory system and the LIFO inventory method. Late in 2018, the following information is available concerning the inventory of Zelenex:
| Beginning inventory, 1/1/2018 (10,000 units @ $30) | $ 300,000 |
| Purchases (40,000 units @ $30) | 1,200,000 |
| Sales (35,000 units @ $60) | 2,100,000 |
By the end of the year, the purchase price of Zelenex had risen to $40 per unit. On December 28, 2018, three days before year-end, Moncrief is in a position to purchase 20,000 additional units of Zelenex at the $40 per unit price. Due to the increase in purchase price, Moncrief will increase the selling price in 2019 to $80 per unit. Inventory on hand before the purchase, 15,000 units, is sufficient to meet the next six months’ sales and the company does not anticipate any significant changes in purchase price during 2019.
Required:
1. Determine the effect of the purchase of the additional 20,000 units on the 2018 gross profit from the sale of Zelenex and the payment due to Jim Lester.
2. Discuss the ethical dilemma Moncrief faces in determining whether or not the additional units should be purchased.
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QUESTION 13
ABC Corporation sells just one product. At the end of fiscal year 2017, ABC applies the lower-of-cost-or market (LCM) rule and writes down the value of inventory from
historical cost of $10,000 to current market value of $9,700. Which of the following will result from this write-down?
O a. ABC's owners' equity decreases by $300.
O b. ABC's total assets decrease by $300.
O C. ABC's gross profit remains the same.
O d. Both a and b are true.
QUESTION 1
a. Kpogo Ltd has the following products in inventory at the end of 2019:
Units
Cost per unit GH¢
XYZ (completed)
540
22
ABC (part complete)
280
26
Each product normally sells at GH¢34 per unit. Due to the difficult trading conditions, Kpogo Ltd
intends to offer a discount of 15% per unit and expects to incur GH¢4 per unit in selling costs.
GH¢10 per unit is expected to be incurred to complete each unit of ABC.
Required:
In accordance with IAS 2 Inventories, at what amount should inventory be stated in the financial
statements of Kpogo Ltd as at 31 December 2019?
b. According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors,
an entity must select and apply its accounting policies consistently from one period to the
next and among various items in the financial statements. However, an entity may change
its accounting policies under certain conditions.
Required:
Identify the circumstances under which it may be appropriate to change accounting policy
in…
Exercise 9-9 (Algo) Gross profit method [LO9-2]
On November 21, 2021, a fire at Hodge Company's warehouse caused severe damage to its entire inventory of Product Tex. Hodge
estimates that all usable damaged goods can be sold for $27,000. The following information was available from the records of
Hodge's periodic inventory system:
Inventory, November 1
Net purchases from November 1, to the date of the fire
Net sales from November 1, to the date of the fire
$175,000
155,000
235,000
Based on recent history, Hodge's gross profit ratio on Product Tex is 40% of net sales.
Required:
Calculate the estimated loss on the inventory from the fire, using the gross profit method.
X Answer is complete but not entirely correct.
Estimated loss from fire
20,000 X
Chapter 8 Solutions
Intermediate Accounting
Ch. 8 - Describe the three types of inventory of a...Ch. 8 - What is the main difference between a perpetual...Ch. 8 - The Cloud Company employs a perpetual inventory...Ch. 8 - The Bockner Company shipped merchandise to Laetner...Ch. 8 - What is a consignment arrangement? Explain the...Ch. 8 - Prob. 8.6QCh. 8 - The Esquire Company employs a periodic inventory...Ch. 8 - Prob. 8.8QCh. 8 - Its common in the electronics industry for unit...Ch. 8 - Explain why proponents of LIFO argue that it...
Ch. 8 - Prob. 8.11QCh. 8 - Describe the ratios used by financial analysts to...Ch. 8 - Prob. 8.13QCh. 8 - Prob. 8.14QCh. 8 - The Austin Company uses the dollar-value LIFO...Ch. 8 - Identify any differences between U.S. GAAP and...Ch. 8 - Determining ending inventory; periodic system ...Ch. 8 - Prob. 8.2BECh. 8 - Prob. 8.3BECh. 8 - Purchas e discounts; gross method LO83 On...Ch. 8 - Prob. 8.5BECh. 8 - Prob. 8.6BECh. 8 - Inventor y cost flow methods; perpetual system ...Ch. 8 - LIFO method LO84 Esquire Inc. uses the LIFO...Ch. 8 - LIFO method LO84 AAA Hardware uses the LIFO...Ch. 8 - LIFO liquidation LO86 Refer to the situation...Ch. 8 - Prob. 8.11BECh. 8 - Ratio analysis LO87 Selected financial statement...Ch. 8 - Dollar-value LIFO LO88 At the beginning of 2018,...Ch. 8 - Perpetual inventory system; journal entries LO81...Ch. 8 - Prob. 8.2ECh. 8 - Determining cost of goods sold; periodic inventory...Ch. 8 - Perpetual and periodic inventory systems compared ...Ch. 8 - Prob. 8.6ECh. 8 - Goods in transit; consignment LO82 The December...Ch. 8 - Physical quantities and costs included in...Ch. 8 - Prob. 8.9ECh. 8 - Prob. 8.10ECh. 8 - Prob. 8.11ECh. 8 - FASB codification research LO82, LO83 Access the...Ch. 8 - Inventory cost flow methods; periodic system ...Ch. 8 - Inventory cost flow methods; perpetual system ...Ch. 8 - Comparison of FIFO and LIFO; periodic system ...Ch. 8 - Average cost method; periodic and perpetual...Ch. 8 - FIFO, LIFO, and average cost methods LO81, LO84...Ch. 8 - Supplemental LIFO disclosures; LIFO reserve; AEP...Ch. 8 - LIFO liquidation LO81, LO84, LO86 The Reuschel...Ch. 8 - Dollar-value LIFO LO88 On January 1, 2018, the...Ch. 8 - Dollar-value LIFO LO88 Mercury Company has only...Ch. 8 - Dollar-value LIFO LO88 Carswell Electronics...Ch. 8 - Concepts; terminology LO81 through LO85 Listed...Ch. 8 - Various inventory transactions; journal entries ...Ch. 8 - Prob. 8.2PCh. 8 - Prob. 8.4PCh. 8 - Various inventory costing methods LO81, LO84...Ch. 8 - Various inventory costing methods LO81, LO84...Ch. 8 - Supple mental LIFO disclosures; Caterpillar LO84,...Ch. 8 - LIFO liquidation LO84, LO86 Taylor Corporation...Ch. 8 - LIFO liquidation LO84, LO86 Cansela Corporation...Ch. 8 - Prob. 8.11PCh. 8 - Integrating problem; inventories and accounts...Ch. 8 - Dollar-value LIFO LO88 On January 1, 2018, the...Ch. 8 - Dollar-value LIFO LO88 Kingston Company uses the...Ch. 8 - Dollar-value LIFO LO88 On January 1, 2018,...Ch. 8 - Prob. 8.1BYPCh. 8 - Real World Case 82 Physical quantities and costs...Ch. 8 - Judgment Case 83 The specific identification...Ch. 8 - Prob. 8.4BYPCh. 8 - Prob. 8.5BYPCh. 8 - Judgment Case 86 Goods in transit LO82 At the end...Ch. 8 - Ethics Case 87 Profit manipulation LO84 In 2017...Ch. 8 - Real World Case 88 Effects of inventory valuation...Ch. 8 - Real World Case 89 Effects of inventory valuation...Ch. 8 - Communication Case 810 Dollar-value LIFO method ...Ch. 8 - Prob. 8.11BYPCh. 8 - Prob. 8.CCTCCh. 8 - Prob. CCIFRS
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