Accounting Homework Week 3
bfwneysqt85
hw20ch20820b-08.08.xlsProblem
| Carson's Camera Store has a number of video recording cameras in stock. All units are priced to provide a normal profit margin of $150. Some of these units are quite old. Carson's has concluded that some "lower-of-cost-or-market" adjustments may be needed, and has gathered the following unit pricing data: | |
| Beta CamCorder, $900 cost, $950 replacement cost, $300 selling price VHS CamCorder, $800 cost, $250 replacement cost, $500 selling price DVD CamCorder, $400 cost, $375 replacement cost, $400 selling price Blu-Ray CamCorder, $600 cost, $750 replacement cost, $800 selling price | |
| (a) | What unit value should be attached to each type of camera, assuming item-by-item application of the lower-of-cost-or-market rule? |
| (b) | Assuming an item-by-item application of the lower-of-cost-or-market rule, what journal entry is needed to reduce the Beta CamCorder? 11 such units remain in stock. |
| (c) | As a general rule, is the item-by-item approach required? Is the item-by-item approach the most "conservative?" |
| (d) | If an item of inventory is written down, but subsequently recovers in value during a subsequent year, can it be written back up? |
&R&"Myriad Web Pro,Bold"&20B-08.08
B-08.08
Worksheet
| (a) | |||||||||
| Beta | VHS | DVD | BLU-RAY | ||||||
| Cost | |||||||||
| Vs. "Market": | |||||||||
| Replacement cost | |||||||||
| Net realizable value | |||||||||
| NRV less normal profit margin | |||||||||
| VALUE TO REPORT | |||||||||
| (b) | Loss Due to Decline in Market Value of Inventory | ||||||||
| Inventory | |||||||||
| To record decline in value of Beta inventory | |||||||||
| (Note: Some companies will establish an allowance account rather than actually reducing the inventory account.) | |||||||||
| (c) | |||||||||
| (d) |
&L&"Myriad Web Pro,Bold"&12Name:
Date: Section: &R&"Myriad Web Pro,Bold"&20B-08.08
B-08.08
