Question

3. (8 points) Smashing Pumpkins Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2014, consists of products D, E, F, G, H, and I. Relevant per-unit data for these products appear below. Item D Item E Item F Item G Item H Item I Estimated selling price $130 $100 $90 $85 $105 $80 Cost 70 80 60 80 45 32 Replacement cost 110 65 70 30 70 30 Estimated selling expense 25 25 20 20 25 25 Normal profit 20 20 20 20 20 20 Instructions Using the lower-of-cost-or-market rule, determine the proper unit value for balance sheet reporting purposes at December 31, 2014, for each of the inventory items above. 4. (6 points) Mark Price Company uses the gross profit method to estimate inventory for monthly

1. (8 points) Smashing Pumpkins Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2014, consists of products D, E, F, G, H, and I. Relevant per-unit data for these products appear below.

Item D Item E Item F Item G Item H Item I Estimated selling price $130 $100 $90 $85 $105 $80 Cost   70   80  60  80   45  32 Replacement cost  110   65  70  30   70  30 Estimated selling expense   25   25  20  20   25  25 Normal profit   20   20  20  20   20  20

Instructions

Using the lower-of-cost-or-market rule, determine the proper unit value for balance sheet reporting purposes at December 31, 2014, for each of the inventory items above.

Answer 1

Product	Cost	Replacement cost	NRV	NRV - NP	Market	Per unit Inventory value
Item D	$70.00	$110.00	$105.00	$85.00	$110.00	$70.00
Item E	$80.00	$65.00	$75.00	$55.00	$65.00	$65.00
Item F	$60.00	$70.00	$70.00	$50.00	$70.00	$60.00
Item G	$80.00	$30.00	$65.00	$45.00	$45.00	$45.00
Item H	$45.00	$70.00	$80.00	$60.00	$70.00	$45.00
Item I	$32.00	$30.00	$55.00	$35.00	$35.00	$32.00
NRV =[Selling price - Selling expenses]
Market =Higher of (Replacement cost, NRV-NP)
Per unit Inventory value =Lower of(Cost, Market)