Assignment on LCNRV and GP method

EXERCISE 5
1. False
2. False
3. True
4. True
5. False

Let’s Analyze

Problem 15 – Althea Nicole Company

Requirements:

1. How much is the cost of the inventory of coffee beans?

Answer: Cost of inventory is Php 1,900,000 since this is the initial cost of coffee beans
inventory

2. What is the LCNRV of the inventory of coffee beans on Dec. 31, 2021?

Answer: The LCNRV of the inventory of coffee beans is Php 1,850,000 because this is the
lower than the deemed cost of Php 1,900,000

3. Prepare the journal entry to record the adjustment of inventory on December 31, 2021?

Dec/31/21 Loss on Inventory writedown 50,000

Allowance for Inventory writedown 50,000

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Problem 16 – Herald Company
Requirements:
1. Compute the biological asset at the end of December 31, 2020.

3-year old Hogs 202,500

3.5-year old Hogs 204,000
2-year old Horses 670,000
4-year old Cattle 935,000
CARRYING AMOUNT 2,011,500
2-year-old Hogs 246,500
BIOLOGICAL ASSETS 2,258,000

2. Compute the unrealized holding gains or losses attributable to price changes and physical
change.
Fair value at dec 31 - same age 2,231,500
Carrying amount - Jan 1 (2,200,000)
Gain on price change 31,500

Fair value at dec 31. 31 - different age 2,258,000

Fair Value at Dec 31 - same age (2,231,500)
Gain on physical change 26,500

Unrealized holding gain = 31,500 + 26,500 = 58,000

3. Prepared the necessary entries to record the above transactions.

Jan/1/2020 Biological Assets 1,970,000

Cash 1,970,000

Jun/30/2020 Biological Assets 230,000

Cash 230,000

Dec/31/2020 Biological Assets 58,000

Unrealized Holding Gain 58,000
Problem 17 – Aeirron Company
Requirements:

1. Compute the gross profit rate of the company for the past years.

2020 2019 2018

Sales 800,000 4,500,000 4,100,000
Cost of Sales (328,000) (2,300,000) (2,500,000)
Profit 472,000 2,200,000 1,600,000

2018 2,500,000 ÷ 4,100,000 = 61%

2019 2,300,000 ÷ 4,500,000 = 51%
2020 328,000 ÷ 800,000 = 41%

*Every year, it decreases to 10%

2. Compute the inventory lost in monsoon.

Beginning Inventory 1,000,000

Purchases 500,000
Goods Available for Sale 1,500,000
Cost of Sales (800,000 x 41%) (472,000)
Ending Inventory 1,028,000

Problem 18 – Cialete Company

Requirements: Compute the following on December 31, 2020

1. Purchases

Payment to suppliers 1,950,000

A/P, end 590,000
A/P, beg. (350,000)
Purchases 2,190,000

2. Sales

Collection of A/R 3,100,000

A/R, end 490,000
A/R, beg. (510,000)
Sales 3,080,000

3. Inventory Loss

2019 2018 2017 Total

Sales 3,000,000 2,750,000 2,100,000 7,850,000
Gross Profit 1,200,000 1,045,000 756,000 3,001,000

Average gross profit rate = 3,001,000 ÷ 7,850,000 = 38%

 Inventory, Jan 1 750,000
Purchases 2,190,000
Goods Available for Sale 2,940,000
Cost of Sales (3,080,000 x 62%) 1,909,600
Inventory, end 1,030,400
Goods on consignment (192,200) *(310,000 x 62% = 192,200)
Salvage Value (45,000)
Inventory loss in fire 793,200

Problem 19 – Bianca Company

Requirements: Compute the following accounts:

1. Purchases

A/P - April 30 for April shipments 410,000

April mdse. shipments 120,000
Purchases - April 530,000
Purchases - March 2,000,000
TOTAL PURCHASES 2,530,000

2. Sales

A/R - April 30 1,100,000

Write-off 60,000
Collections (500,000-50,000) 450,000
Total 1,610,000
Less: A/R - Mar 31 (1,050,000)
Sales for April 560,000
Sales for March 31 4,000,000
TOTAL SALES 4,560,000

3. Estimated Ending Inventory

Inventory, beg. 2,100,000

Purchases 2,530,000
Less: Purchase returns (50,000)
Goods Available for Sale 4,580,000
Less: Cost of Sales (4,560,000 x 60%) (2,736,000)
Inventory, end 1,844,000

4. Inventory Loss

Inventory, end 1,844,000

Less: Goods in transit 60,000
Salvage Value 150,000
Inventory loss 1,634,000
Problem 20 – Cayden Company
Requirements: Compute the ending inventory using the:

1. LCNRV approach

Cost Retail
Inventory, beg 350,000 650,000
Purchases 2,900,000 4,800,000
Freight-in 230,000
Purchase Return (100,000) (175,000)
Purchase discount (210,000)
Abnormal shoplifting (50,000) (50,000)
Markups 150,000
Markups cancellation (70,000)
GAS-LCNRV 3,120,000 5,305,000 0.59

Markdown - (60,000)
GAS-AVERAGE 3,120,000 5,245,000 0.59

Less: Sales 5,000,000

Sales return (200,000)
Estimated normal shrinkages 100,000 (4,900,000)
Ending inventory at retail 345,000

*LCNRV cost = 345,000 x 59% = 203,550

2. Average approach

Cost Retail
Inventory, beg 350,000 650,000
Purchases 2,900,000 4,800,000
Freight-in 230,000
Purchase Return (100,000) (175,000)
Purchase discount (210,000)
Abnormal shoplifting (50,000) (50,000)
Markups 150,000
Markups cancellation (70,000)
GAS-LCNRV 3,120,000 5,305,000 0.59

Markdown - (60,000)
GAS-AVERAGE 3,120,000 5,245,000 0.59

Less: Sales 5,000,000

Sales return (200,000)
Estimated normal shrinkages 100,000 (4,900,000)
Ending inventory at retail 345,000
*Average cost = 345,000 x 59% = 203,550
3. FIFO approach

Cost Retail
Purchases 2,900,000 4,800,000
Freight-in 230,000
Purchase Return (100,000) (175,000)
Purchase discount (210,000)
Abnormal shoplifting (50,000) (50,000)
Markups 150,000
Markups cancellation (70,000)
Markdown   (60,000)
Current year cost 2,770,000 4,595,000
Add: Beg. Inventory 350,000 650,000
Total GAS 3,120,000 5,245,000

Less: Sales 5,000,000

Sales return (200,000)
Estimated normal shrinkages 100,000 (4,900,000)
Ending inventory at retail 345,000

Cost ratio = 2,770,000 ÷ 4,595,000 = 60%

FIFO cost = 345,000 x 60% = 207,000