E9-1

PART QUANTITY COST/UNIT NRV TOTAL COST*

110 600 95.00 100.00 57,000.00
111 1000 60.00 52.00 60,000.00
112 500 80.00 76.00 40,000.00
113 200 170.00 180.00 34,000.00
120 400 205.00 208.00 82,000.00
121 1600 16.00 1.00 25,600.00
122 300 240.00 235.00 72,000.00
370,600.00

E9-2
ITEM D E F G
ESTIMATED SP 120.00 110.00 95.00 90.00
COST 75.00 80.00 80.00 80.00
COST COMPLETE 30.00 30.00 25.00 35.00
SELLING COST 10.00 18.00 10.00 20.00
NRV 80.00 62.00 60.00 35.00
LCM 75.00 62.00 60.00 35.00

E9-3
COST TO
ESTIMATED
ITEM NO. QUANTITY COST/UNIT COMPLETE &
SP
SELL
1320 1200 3.20 4.50 1.60
1333 900 2.70 3.40 1.00
1426 800 4.50 5.00 1.40
1437 1000 3.60 3.20 1.35
1510 700 2.25 3.25 1.40
1522 500 3.00 3.90 0.80
 1573 3000 1.80 2.50 1.20

1626 1000 4.70 6.00 1.50

E9-4
GIVEN:
COST NRV
12/31/2017 346,000.00 322,000.00
12/31/2018 410,000.00 390,000.00

A. DEC. 31, 2017 COST OF GOOD SOLD 24000

ALLOWANCE TO REDUCE INVTY TO NRV

DEC. 31,2018 ALLOWANCE TO REDUCE INVTY TO NRV 4000

COST OF GOOD SOLD

B. DEC. 31,2017
LOSS DUE TO MARKET DECLINE OF INVTY 24000
ALLOWANCE TO REDUCE INVTY TO NRV

DEC. 31, 2018 ALLOWANCE TO REDUCE INVTY TO NRV 4000

COST OF GOOD SOLD

C. Both methods have the same effect on the net income

E9-5
GIVEN
JAN. 31 FEB. 28 MAR. 31 APRIL. 30
Inventory at cost 15000 15100 17000 14000
Inventory at LCN 14500 12600 15600 13300

Purchases for the month 17000 24000 26500

Sales for the month 29000 35000 40000

INCOME STATEMENT
SALES 29000 35000 40000

COST OF GOOD SOLD:

invty beg 15000 15100 17000

purchases 17000 24000 26500

COG Available for sale 32000 39100 43500

invty end 15100 17000 14000

COGS 16900 22100 29500

GROSS PROFIT 12100 12900 10500

GAIN/LOSS * -2000 1100 700

10100 14000 11200

COMPUTATION FOR GAIN OR LOSS:

JAN. 31 FEB. 28 MAR. 31 APRIL. 30
IInventory at cost 15000 15100 17000 14000
Inventory at LCNRV 14500 12600 15600 13300
Allowance needed
to reduce invty to 500 2500 1400 700
market
Gain/loss * -2000 1100 700

B. JAN 31 Loss due to market decline of invty

allowance to reduce invty to market

Feb-28 Loss due to market decline of invty

allowance to reduce invty to market

Mar-31 allowance to reduce invty to market

 Recovery loss due to market decline of invty

allowance to reduce invty to market

Recovery loss due to market decline of invty

E9-6
GIVEN:
ESTIMATED
SELLING PRICE 50 NRV 36
NRV-NORMAL
COST 40 PROFIT 27
ESTIMATED REPLACEME
SELLING COSTS 14 NT COST 38
DESIGNATED
9 MARKET- 36
NORMAL PROFIT CEILING
UNITS-DEC. 31,2017 1000 COST 40
Incorrect value/unit 38 LCM 36

THE ENDING INVENTORY OF 2017 IS OVERSTATED, SO THE NET INCOME IS OVERSTATE

THEN THE BEGINNING INVENTORY OF YEAR 2018 IS ALSO OVERSTATED, THE NET INCO
ERROR= 2000

NET INCOME
2017- ENDING
INVENTORY OVERSTATED OVERSTATED
2018 - BEGINNING UNDERSTATE
INVENTORY OVERSTATED
D

E9-7
ESTIMATTED
COST T O
ITEM NO QUANTITY COST/UNIT SELLING
REPLACE
PRICE
1320 1200 3.2 3 4.5

1333 900 2.7 2.3 3.5

1426 800 4.5 3.7 5

 1437 1000 3.6 3.1 3.2

1510 700 2.25 2 3.25

1522 500 3 2.7 3.8

1573 3000 1.8 1.6 2.5

1626 1000 4.7 5.2 6

FORMULA: *NRV =ESTIMATED SELLING PRICE - COST OF COMPLETION AND

*DESIGNATED MARKET VALUE = IN BETWEEN OF COST TO REPL
*LCM = Lower between cost and designated market value
*FINAL INVENTORY = LCM × QUANTITY

E9-8
A. 12-31-16 COST OF GOOD SOLD
ALLOWANCE TO REDUCE INVTY TO MARKET

12/31/2017 ALLOWANCE TO REDUCE INVENTORY MARKET

COST OF GOOD SOLD

B. 12-31-16
LOSS DUE TO MARKET DECLINE OF INVTY
ALLOWANCE TO REDUCE INVTY TO MARKET

12/31/2017
ALLOWANCE TO REDUCE INVENTORY TO MARKET

LOSS DUE TO MARKET DECLINE OF INVENTORY

C. BOTH METHODS HAVE THE SAME EFFECT ON INCOME

E9-9
SALES TOTAL RELATIVE
NO. OF LOTS PRICE PER SALES SALES
LOT PRICE PRICE
GROUP 1 9 3000 27000 27000/127800

GROUP 2 15 4000 60000 60000/127800

GROUP 3 17 2400 40800 40800/127800

127800

NO. OF LOTS COST OF LOTS

ENDING INVTY COST/LOT
SOLD SOLD
GROUP 1 5 4 2100 8400
GROUP 2 7 8 2800 22400
GROUP 3 2 15 1680 25200
TOTAL 27 56000

SALES REVENUE 80000 Purchased 55000

COGS 56000 Additional cost 34460
GROSS PROFIT 24000 TOTAL COST* 89460
OPEX -18200
NET INCOME 5800

E9-10
SALES TOTAL RELATIVE
TYPE OT NO. OF
PRICE SALES SALES
CHAIRS CHAIRS
/CHAIR PRICE PRICE
LOUNGE CHAIRS 400 90 36000 36000/95000
ARMCHAIRS 300 80 24000 24000/95000
STRAIGHT CHAIRS 700 50 35000 35000/95000
 TOTAL 95000

NO. OF COST OF
SALES
CHAIRS COST/CHAIR CHAIRS
PRICE/CHAIR
SOLD SOLD
LOUNGE CHAIRS 200 56.7 11340 90
ARMCHAIRS 100 50.4 5040 80
STRAIGHT CHAIR 120 31.5 3780 50
20160

TOTAL NO. NO. SOLD END.INVTY COST/CHAIR

STRAIGHT CHAIRS 700 120 580 31.5

E9-11

Urealized holding gain or loss- Income (Purchase Commitm35000

Etimated liability on purchase Commitments

Price 400
Had declined to: 365
35

E9-12
GIVEN:
PURCHASE COMMITMENTS - 36000 GALLON AT 3.00 PER GALLON

A. ASSUMING THAT THE MARKET PRICE AS OF DECEMBER 32, 2017, IS 3.30,

HOW WOULD THIS MATTER BE TREATED IN THE ACCOUNTS AND STATEMENTS?

USUALLY , IT IS NOT NECESSARY FOR THE BUYER TO MAKE ANY ENTRIES TO

REFLECT COMMITMENTS FOR PURCHASES OF GOODS THAT THE SELLER HAS
NOT SHIPPED. IF THE CO MMITMENT IS MATERIAL IN AMOUNT, THERE SHOULD BE
A FOOTNOTED IN BALANCE SHEET STATING THE NATURE AND EXTENT OF
 A FOOTNOTED IN BALANCE SHEET STATING THE NATURE AND EXTENT OF
COMMITMENT -- THAT MAY DISCLOSE THE MARKET PRICE.

*THE EXCESS OF MARKET PRICE OVER CONTRACTED PRICE IS A GAIN

CONTINGENCY WHICH PER FASB STATEMENT NO. 5 CANNOT BE RECOGNIZED IN
THE ACCOUNTS UNTIL IT IS REALIZED.

B. ASSUMING THAT THE MARKET PRICE AS OF DECEMBER 32, 2017, IS 2.70,

INSTEAD OF 3.30, HOW WOULD TREAT THIS SITUATION IN THE ACCOUNTS AND
STATEMENTS?

UNREALIZED HOLDING OR LOSS --INCOME 10800

ESTIMATED LIABILITY ON PURCHASE 10800

* 36000 gallons ×(3.00 -2.70 market price) = 10800

*THE CONTRACT PRICE IS GREATER THAN THE MARKET PRICE (2.70), SO THE
DIFFERENCE WILL BE RECOGNIZE BY THE BUYER AS LOSSES DURING THE
PERIOD WHICH THE DECLINE IN MARKET PRICES TAKE PLACE IN INCOME
STATEMENT AND SHOULD BE INCLUDED CURRENT LIABILITY ON BALANCE
SHEET.

C. ENTRY IN JAN. 2018 ,WHEN THE 36000 GALLON RECEIVED,

ASSUMING THE SITUATION IN (B)

RAW MATERIALS 97200

ESTIMATED LIABILITY ON PURCHAS 10800
ACCOUNTS PAYABLE 108000

*THE 97000 DEBIT RAW MATERIALS - TO RECOGNIZE THE ACTUAL

COST , THE CONTRACT PRICE IS REDUCE BY THE LOSS DUE TO
THE DECLINE OF MARKET PRICE
*10800 DEBIT - TO ELIMINATE THE ESTIMATED LIABILITY, SET UP
AT DECEMBER 31, 2017

E9-13
1. 20% 2. 25% 3. 33 1/3 % 4. 50%
PERCENTAGE
MARK UP AT COST 0.2000 0.2500 0.3333 0.5000
GROSS PROFIT 0.1667 0.2000 0.2500 0.3333
PERCENTAGE
GROSS PROFIT
PERCENTAGE *16.67% 20% 25% 33.33%

SOLUTION: PERCENTAGE MARKUP AT COST

100% - Percantage markup at cost
16.67% 20%
*16.67% = *20% =
100% + 16.67 % 100% + 20 %

25% 33.33%
*25% = *33.33 % =
100% + 25% 100% + 33.33%

E9-14
GIVEN:
INVTY, MAY 1 160000
PURCHASES
640000
(gross)
FREIGHT -IN 30000
SALES
1000000
REVENUE
SALES
70000
RETURNS
PURCHASE
12000
DISCOUNTS

COMPUTE FOR ESTIMATED INVTY AT MAY 31, ASSUMING THAT THE GROSS PROFIT IS:
A. 30% OF SALES
B. 30% OF COST

SOLUTION:
INVTY AT
160000
INVTY AT MAY 1 MAY 1
PURCHASES PURCHASES
640000
(gross) (gross)

PURCHASE PURCHASE
-12000
DISCOUNT DISCOUNT
FREIGHT-IN 30000 FREIGHT-IN
GOODS GOODS
AVAILABLE FOR 818000 AVAILABLE
SALE FOR SALE
 SALES
1000000
SALES (gross) (gross)
SALES SALES
-70000
RETURNS RETURNS
NET SALES 930000 NET SALES
Gross profit
Gross profit -279000 (*23.08 %
(30%×930000) ×930000)
NET SALES NET SALES
651000
(COST) (COST)
APPROXIMA
APPROXIMATE 167000 A. TE INVTY
INVTY (COST) (COST)

E9-15
GIVEN:
INTY -JAN. 1 380000
PURCHASES 72000
FREIGHT-IN 34000
PURCHASE
2400
RETURNS
SALES 100000
GOODS
UNDAMAGED- 10900
MARCH 9

A. COMPUTE FOR THE COST OF GOODS DESTROYED AT MAY 31

B. COMPUTE FOR THE COST OF GOODS DESTROYED AT MAY 31,
ASSUMING THAT THE GROSS PROFIT IS 33 1/3 % SALES

SOLUTION:
MERCHANDISE ON
HAND-JAN. 1 38000 COGS*
PURCHASES 72000 SALES ARE MADE AT 33 1/3% ABOVE COST
FREIGHT -IN 3400 Gross profit 33 1/3%
PURCHASE
RETURNS -2400 100%+ 33 1/3 %
TOTAL
MERCHANDISE 111000 25%
COGS* 75000 OF SALES
ENDING INVTY 36000 so COGS = 75% OF SALES
UNDAMAGED
GOODS 10900 100000 × 75%
ESTIMATED FIRE
LOSS 25100 75000
A.

MERCHANDISE ON
HAND-JAN. 1 38000 COGC* =
PURCHASES 72000 66 2/3% OF SALES
FREIGHT -IN 3400 .66667 × 100000
PURCHASE
RETURNS -2400 66667
TOTAL
MERCHANDISE 111000
COGS* 66667
ENDING INVTY 44333
UNDAMAGED
GOODS 10900
ESTIMATED
FIRELOSS 33433
B.
 TOTAL
LCNRV*
MARKET*
60,000.00 57,000.00 FORMULA:
52,000.00 52,000.00 *TOTAL COST = QUANTITY × COST/UNIT
38,000.00 38,000.00 *TOTAL MARKET = QUANTITY × NRV
36,000.00 34,000.00 *LCNRV = Whichever is lower between co
83,200.00 82,000.00
1,600.00 1,600.00
70,500.00 70,500.00
341,300.00 335,100.00
B A

H I
110.00 90.00 FORMULA:
50.00 36.00 *NRV = ESTIMATED SELLING PRICE - (CO
30.00 30.00 *LCM =Whichever is lower between cost a
10.00 20.00
70.00 40.00
50.00 36.00

FINAL
VALUE/UNIT
NRV INVENTORY
(LCNRV)
VALUE
2.90 2.90 3480.00 FORMULA:
2.40 2.40 2160.00 *NRV = ESTIMATED SELLING PRICE - CO
3.60 3.60 2880.00 *LCNRV = Whichever is lower between co
1.85 1.85 1850.00 *FINAL INVTY = QUANTITY × LCNRV
1.85 1.85 1295.00
3.10 3.00 1500.00
 1.30 1.30 3900.00

4.50 4.50 4500.00

Total 21565.00

COST OF INVENTORY 12-31-17 346000

24000 LCM12-31-17 -322000
Allowance to reduce invty market 24000

4000 Cost of invty 12-31-18 410000

LCM 12-31-18 -390000
Allowance to reduce invty market 20000

RECOVERY OF PREVIOUSLY RECOGNIZED LOSS

24000 Allowance to reduce invty market 24000
Allowance to reduce invty market -20000
4000

4000

income
 *-2000 = 500- 2500
1100= 2500 - 1400
700 = 1400 - 700

500
500

2000
2000

1100
ne of invty 1100

700
ne of invty 700

*NRV= ESTIMATED SELLING PRICE - ESTIMTED SELLING COSTS

*NRV- NORMAL PROFIT

*ERROR = (INCORRECT VALUE - LCM)× UNITS

(38 - 36) x 1000
2000

OME IS OVERSTATED.
TED, THE NET INCOME WILL BE UNDERSTATED.

COST OF DESIGN
NRV-
COMPLETI ATED
NORMAL PROFIT NRV NORMAL
ON AND MARKET
PROFIT
DISPOSAL VALUE
0.35 1.25 4.15 2.9 3

0.5 0.5 3 2.5 2.5

0.4 1 4.6 3.6 3.7

 0.25 0.9 2.95 2.05 2.95

0.8 0.6 2.45 1.85 2

0.4 0.5 3.4 2.9 2.9

0.75 0.5 1.75 1.25 1.6

0.5 1 5.5 4.5 5.2

COMPLETION AND DISPOSAL

OF COST TO REPLACE, NRV AND NRV- NORMAL PROFIT
ket value

29000 COST OF INVTY 356000

TO MARKET 29000 LCM -327000
Allowance to
reduce invty 29000
market 12-31-16
4000
4000 COST OF INVTY 420000
LCM -395000
29000 Allowance to
reduce invty 25000
market 12-31-16
TO MARKET 29000
RECOVERY OF PREVIOUSLY
RECOGNIZED LOSS
4000 Allowance to
reduce invty 12- 29000
31-16
4000 allowance to
reduce invty 12- -25000
OF INVENTORY 31-17
4000
 COST
TOTAL COST PER
ALLOCATED
COST* LOT
TO LOTS
89460 18900 2100
89460 42000 2800
89460 28560 1680
89460

SALES
SALES GROSS PROFIT
PRICE /LOT
3000 12000 3600
4000 32000 9600
2400 36000 10800
80000 24000

COST
TOTAL
ALLOCATED COST/CHAIR
COST
TO CHAIRS
59850 22680 56.7
59850 15120 50.4
59850 22050 31.5
 59850

GROSS
SALES
PROFIT
18000 6660
8000 2960
6000 2220
32000 11840

COST OF
ENDING
INVTY
18270

35000
S PROFIT IS:

160000 30%
*23.08% =
640000 100% + 30%

-12000

30000

818000
 1000000

-70000

930000

-214644

715356

102644 B.

1/3% ABOVE COST

3 1/3 %
ES
QUANTITY × COST/UNIT
T = QUANTITY × NRV
ever is lower between cost and NRV

ED SELLING PRICE - (COST TO COMPLETE + SELLING COST)

er is lower between cost and NRV

ED SELLING PRICE - COST TO COMPLETE AND SELL

ever is lower between cost and NRV
QUANTITY × LCNRV
GNIZED LOSS
D SELLING COSTS

FINAL
LCM
INVTY

3 3600

2.5 2250

3.7 2960
 2.95 2950

2 1400

2.9 1450

1.6 4800

4.7 4700
TOTAL 24110