9th Edition

ISBN: 9781260029901

Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher: McGraw-Hill Education

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Textbook Question

Chapter 9, Problem 9.2E

Lower of cost or net realizable value

• LO9–1

The inventory of Royal Decking consisted of five products. Information about the December 31, 2018, inventory is as follows:

	Per Unit
	Product Cost	Selling Price
A	$ 40	$ 60
B	80	100
C	40	80
D	100	130
E	20	30

Costs to sell consist of a sales commission equal to 10% of selling price and shipping costs equal to 5% of cost.

Required:

What unit value should Royal Decking use for each of its products when applying the lower of cost or net realizable value (LCNRV) rule to units of ending inventory?

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Chapter 9, Problem 9.1E

Chapter 9, Problem 9.3E

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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 9 Solutions

Loose Leaf Intermediate Accounting

Ch. 9 - Explain the (a) lower of cost or net realizable...Ch. 9 - What are the various levels of aggregation to...Ch. 9 - Describe the alternative approaches for recording...Ch. 9 - Explain the gross profit method of estimating...Ch. 9 - The Rider Company uses the gross profit method to...Ch. 9 - Explain the retail inventory method of estimating...Ch. 9 - Both the gross profit method and the retail...Ch. 9 - Define each of the following retail terms: initial...Ch. 9 - Explain how to estimate the average cost of...Ch. 9 - Prob. 9.10Q

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Solution Summary: The author explains the LCM approach, which values the inventory at historical cost or lesser than the market replacement cost. The NRV (Net Realizable Value) refers to an estimated selling price that a company expects

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