Chapter 9, Problem 9.1BYP

1.

To determine

LCM (Lower of Cost or Market) approach: It is an approach that values the inventory at historical cost or lesser than the market replacement cost. The replacement cost refers to the amount that could be realized from the sale of the inventory.

NRV (Net Realizable Value): It refers to an estimated selling price that a company expects to collect in the form of cash from the customers by the sale of inventory. The value is reduced by the expected cost of completion, disposal and transportation. Sales commission and shipping costs also included in the predictable cost.

Retail inventory method: It takes into account all the retail amounts that is, the current selling prices. Under this method, the goods available for sale, at retail is deducted from the sales, at retail to determine the ending inventory, at retail.

To Explain: the reason of the accounting treatment by Company H for the warehousing costs related to its wholesale inventories.

2 a.

To determine

To explain: the reason for the valuation of inventory at the lower of cost or market.

2 b.

To determine

To state: the amount at which the Company H’s wholesale inventories should be reported in the balance sheet.

3.

To determine

To Explain: the treatment of the freight-in costs, net mark ups, and net markdowns in the calculation of the cost-to-retail percentage used to determine the estimated cost of its ending retail inventories.

4.

To determine

To explain: the reason for the retail inventory method of Company H approximates lower of average cost or market.