ACC 304 Week 2 Homework Chapter 9

IFRS Practice Question 01

All of the following are key similarities between GAAP and IFRS with respect to
accounting for inventories except:
o
o
o
o

Costs to include in inventories are similar.

LIFO cost flow assumption where appropriate is used by both sets of standards.
Fair value valuation of inventories is prohibited by both sets of standards.
Guidelines on ownership of goods are similar.

IFRS Practice Question 2

All of the following are key differences between GAAP and IFRS with respect to
accounting for inventories except the:
o Definition of the lower-of-cost-or-market test for inventory valuation differs
between GAAP and IFRS.
o Average-cost method is prohibited under IFRS.
o Inventory basis determination for write-downs differs between GAAP and IFRS.
o Guidelines are more principles-based under IFRS than they are under GAAP.

IFRS Practice Question 3

Starfish Company (a company using GAAP and the LIFO inventory method) is
considering changing to IFRS and the FIFO inventory method. How would a comparison
of these methods affect Starfishs financials?
o During a period of inflation, working capital would decrease when IFRS and the
FIFO inventory method are used as compared to GAAP and LIFO.
o During a period of inflation, the taxes will decrease when IFRS and the FIFO
inventory method are used as compared to GAAP and LIFO.
o During a period of inflation, net income would be greater if IFRS and the FIFO
inventory method are used as compared to GAAP and LIFO.
o During a period of inflation, the current ratio would decrease when IFRS and the
FIFO inventory method are used as compared to GAAP and LIFO.

IFRS Practice Question 4

Assume that Darcy Industries had the following inventory values.
1. Inventory cost (on December 31, 2014) $1,500
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ACC 304 Week 2 Homework Chapter 9

2. Inventory sales value (on December 31, 2014) $1,350
3. Inventory net realizable value (on December 31, 2014) $1,320
Under IFRS, what is the inventory carrying value on December 31, 2014?
o
o
o
o

$1,500.
$1,570.
$1,560.
$1,320.

IFRS Practice Question 5

Under IFRS, agricultural activity results in which of the following types of assets?
I. Agricultural produce
II. Biological assets
o
o
o
o

I only.
II only.
I and II.
Neither I nor II.

Brief Exercise 9-2

Floyd Corporation has the following four items in its ending inventory.
Item
Jokers
Penguins
Riddlers
Scarecrows

Cost
$2,020
5,050
4,444
3,232

Replacement
Cost
$2,071
5,151
4,596
3,020

Net Realizable
Value (NRV)
$2,121
5,000
4,671
3,868

NRV less Normal

Profit Margin
$1,616
4,141
3,737
3,101

Determine the final lower-of-cost-or-market inventory value for each item.

Jokers
Penguins
Riddlers
Scarecrows

$
$
$
$

2,020
5,000
4,444
3,101

Brief Exercise 9-4

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ACC 304 Week 2 Homework Chapter 9

Bell, Inc. buys 1,100 computer game CDs from a distributor who is discontinuing those
games. The purchase price for the lot is $8,200. Bell will group the CDs into three price
categories for resale, as indicated below

Determine the cost per CD for each group, using the relative sales value method. (Do not
round ratios for computational purposes and round final answers to 2 decimal places, e.g.
5.85.)
Group
1
2
3

$
$
$

Cost per CD
6.11
7.46
8.79

Brief Exercise 9-8

Boyne Inc. had beginning inventory of $14,800 at cost and $27,900 at retail. Net purchases
were $156,410 at cost and $180,400 at retail. Net markups were $11,200; net markdowns
were $8,000; and sales revenue was $153,400. Compute ending inventory at cost using the
conventional retail method. (Round ratios for computational purposes to 0 decimal places,
e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)
Ending inventory using the conventional retail method $ 45,318

Exercise 9-9
Marvin Gaye Company has been having difficulty obtaining key raw materials for its
manufacturing process. The company therefore signed a long-term noncancelable purchase
commitment with its largest supplier of this raw material on November 30, 2014, at an
agreed price of $485,800. At December 31, 2014, the raw material had declined in price to
$457,550.
What entry would you make on December 31, 2014, to recognize these facts? (Credit
account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Dec. 31

Account Titles and Explanation

Loss Due to Market Decline of Inventory

Debit
28,250

Credit

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ACC 304 Week 2 Homework Chapter 9

Inventory Over and Short

28,250

Exercise 9-13
Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise
on hand on January 1 was $38,560. Purchases since January 1 were $92,370; freight-in,
$4,900; purchase returns and allowances, $2,100. Sales are made at 33 1/3% above cost and
totaled $140,400 to March 9. Goods costing $12,170 were left undamaged by the fire;
remaining goods were destroyed.
(a) Compute the cost of goods destroyed.
Cost of goods destroyed

$ 86,230

(b) Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales.
(Round ratios for computational purposes to 5 decimal places, e.g. 78.72345% and final
answer to 0 decimal places, e.g. 28,987.)
Cost of goods destroyed

$ 2,874,305

Exercise 9-19
Presented below is information related to Ricky Henderson Company.

Compute the inventory by the conventional retail inventory method. (Round ratios for
computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places,
e.g. 28,987.)
Ending inventory using conventional retail inventory method $ 144,144

Problem 9-9
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ACC 304 Week 2 Homework Chapter 9

Maddox Specialty Company, a division of Lost World Inc., manufactures three models of
gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and
catalog outlets. Since beginning operations in 1990, Maddox has used normal absorption
costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The
balances of the inventory accounts at the end of Maddoxs fiscal year, November 30, 2014,
are shown below. The inventories are stated at cost before any year-end adjustments.

The following information relates to Maddoxs inventory and operations.

1. The finished goods inventory consists of the items analyzed below.

2
.
3
.
4
.

One-half of the head tube shifter finished goods inventory is held by catalog outlets on
consignment.
Three-quarters of the bar end shifter finished goods inventory has been pledged as
collateral for a bank loan.
One-half of the raw materials balance represents derailleurs acquired at a contracted
price 20% above the current market price. The market value of the rest of the raw
materials is $135,000.
5 The total market value of the work in process inventory is $116,610.
.
6 Included in the cost of factory supplies are obsolete items with an historical cost of
. $4,420. The market value of the remaining factory supplies is $69,600.
7 Maddox applies the lower-of-cost-or-market method to each of the three types of
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ACC 304 Week 2 Homework Chapter 9

. shifters in finished goods inventory. For each of the other three inventory accounts,
Maddox applies the lower-of-cost-or-market method to the total of each inventory
account.
8 Consider all amounts presented above to be material in relation to Maddoxs financial
. statements taken as a whole.
(a)
Prepare the inventory section of Maddoxs balance sheet as of November 30, 2015. (Round
answers to 0 decimal places, e.g. 2,550.)

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