Ch a pte r 4 Controlling and Valuing Inventory 103

Exercises (4.1) Calculate the ending inventory balance and cost using FIFO. (Obj. 1). The data
given below relate to Material 408, 6-inch cloth zippers used by the Elite Leather Goods
Company. Based on this data, determine the ending inventory balance and cost using the
FIFO inventory valuation method.

Beginning Balance 480 at $4.80 each

Purchase Order 301 600 at $4.90 each
Requisition 469 175
Requisition 493 225
Requisition 504 280
Purchase Order 960 400 at $4.95 each
Requisition 529 310
Returned Material Report 24 (from
Requisition 504) 20

(4.2) Calculate the ending inventory balance and cost using LIFO. (Obj. 2). Based on
the data given in Exercise 4.1, determine the ending inventory balance and cost using the
LIFO inventory valuation method.
(4.3) Calculate the ending inventory balance and cost using the moving average
method. (Obj. 3). Based on the data given in Exercise 4.1, determine the ending inventory
balance and cost using the moving average inventory valuation method.
(4.4) Calculate inventory value using the lower of cost or market method. (Obj. 4).
The
data given below relates to the raw materials inventory of the Edgewood Lighting Com-
pany. Determine the value of the inventory if the lower of cost or market method is
applied to the individual inventory items.
Ch a pte r 4 Controlling and Valuing Inventory 104
 Ch a pte r 4 Controlling and Valuing Inventory 105

Units Costs Market

Group I
Material A
Material B
Group II
Material C
Material D
 460 $1.40 $1.30
830 .85 .90

1,290 1.20 1.45

580 .65 .55
Ch a pte r 4 Controlling and Valuing Inventory 106
 Ch a pte r 4 Controlling and Valuing Inventory 107

(4.5
) Calculate inventory value by group using the lower of cost or market method. (Obj.
6).
Based on the data given in Exercise 4.4, determine the value of the inventory if the lower
of cost or market method is applied to the inventory by groups.
(4.6) Calculate inventory value using the lower of cost or market method. (Obj. 5).
Based on the data given in Exercise 4.4, determine the value of the inventory if the lower
of cost or market method is applied to the inventory as a whole.
Ch a pte r 4 Controlling and Valuing Inventory 108
 Ch a pte r 4 Controlling and Valuing Inventory 109

(4.7) Present inventory on the balance sheet at the lower of cost or market. (Obj. 7).
The following information is obtained from the records of the Southmark Corporation:
Inventory (at Cost): $463,240
Allowance for Reduction of Inventory to Market Value: $12,982
Show the balance sheet presentation for these accounts.
110 Part One Job Order Cost Accounting

(4.8) Calculate the cost of goods sold. (Obj. 7). From the data presented below,
determine the cost of goods sold to be shown on the income statement of the
Langley Corporation for the month of September 2006.

Finished Goods, September 1, 2006 $ 64,820

Finished Goods, September 30, 2006 71,420
Cost of Goods Manufactured 197,720
Loss on Reduction of Inventory to Market 4,870

(4,9) Calculate the cost of goods sold. (Obj. 7). From the data presented below,
determine the cost of goods sold to be shown on the income statement of the
Omega Manufacturing Company for the month of June 2006.

Finished Goods, June 1, 2006 $145,270

Finished Goods, June 30, 2006 138,380
Cost of Goods Manufactured 402,910
Recovery From Decrease in Allowance for
Reduction of Inventory to Market 5,360

(4.10) Journalize inventory at the lower of cost or market. (Obj. 7). The
Bigelow Company has decided to value its raw materials inventory at the
lower of cost or market. The Raw Materials account has an ending balance
of $110,492. The market value of the raw materials is $107,460. Record the
necessary general journal entry to value the inventory at the lower of cost or
market.
(4.11) Journalize inventory at the lower of cost or market. (Obj. 7). At the end
of the current fiscal year, the Raw Materials account for the Martinez
Manufacturing Company has a balance of $296,369. The company has been
using the lower of cost or market method for several years. The Allowance
for Reduction of Inventory to Market Value account has a balance of
$8,930. The market value of the raw materials at the end of the year is
$291,250. Record the adjusting entry needed to value the raw materials at
the lower of cost or market.

(4.1A) Use different inventory costing methods. (Objs. 1-3). The Allegheny
Manufacturing Company uses a perpetual inventory system to control materials. Data relating to
Material S-8 during January 2006 are given below.
Jan. 1 Balance, 150 units at $4.00 each.
6 Received 200 units at $4.05 each, Purchase Order 74.
12 Issued 225 units, Requisition 18.
14 Received 250 units at $4.10 each, Purchase Order 83.
17 Issued 200 units, Requisition 23.
31 Issued 40 units, Requisition 29.
Instructions
Enter the beginning balance on a materials ledger card for each of the three
inventory valuation methods: FIFO, LIFO, and moving average. Record
each of the transactions on each of the materials ledger cards. Round unit
costs to the nearest cent under the moving average costing method.
(4.2A) Use different inventory costing methods. (Objs. 1-3). Monroeville Office Furniture
 Ch a pte r 4 Controlling and Valuing Inventory 111

Company, a manufacturer of office equipment, uses a perpetual inventory system to control

materials. During My 2006, the following transactions took place in completing an order for chairs
and desks:
July 1 Issued 110 units of Material BA2 on Materials Requisition 320.
3 Received 650 units of Material B-42 at $1.02 and 650 units of Material R-18
at $.65. These goods were ordered on Purchase Order 517.
6 Issued 175 units of Material R-18 on Materials Requisition 347.
8 Issued 150 units of Material B-42 on Materials Requisition 362.
12 Issued 80 units of Material R-18 on Materials Requisition 463.
26 Received 650 units of Material R-18 at $.59. These goods were ordered on
Purchase Order 617.
31 Issued 210 units of Material B-42 and 3 82 units of Material R-18 on Materials
Requisition 822.

Instructions
1. The number of units on hand, the unit price, and the total amount of July 1, 2006, are given
below. Record each of the transactions on materials ledger cards. Use the FIFO method of
inventory costing.

Reorder Reorder Balance

Material Point Quantity Units Price Amount
B-42 Seats, Plywood 300 650 271 $.95 $257.45
R-18 Tops, Plastic 300 650 83 .70 58.10

2. Record each of the transactions on materials ledger cards. Use the LIFO method of inventory
costing.
3. Record each of the transactions on materials ledger cards. Use the moving average method of
inventory costing. Compute new unit prices only after each new purchase of materials. Carry
your computations to three decimal places.
(4.3 A) Calculate inventory value at the lower of cost or market. (Objs. 4-6). The following
data pertain to the raw materials inventory for the Aspen Trail Bike Company on December
31,2006.
112 Part One Job Order Cost Accounting

Instructions
Determine the amount to be reported as the inventory valuation at cost or market, whichever
is lower, under each of the following methods: (1) lower of cost or market for each item, (2)
lower of total cost or total market, and (3) lower of total cost or total market by groups.

(4.4A) Calculate inventory value at the lower of cost or market and make journal entries.
(Obj. 7). The Jorden Novelty Company uses a perpetual inventory system. On April 30,
2006, its balance sheet included the following items related to the raw materials inventory:

$587,250
41,320
$545,930
Raw Materials Inventory, at Cost
Deduct Allowance for Reduction of Inventory to Market
Raw Materials Inventory, at Lower of Cost or Market
Ch a pte r 4 Controlling and Valuing Inventory 113
114 Part One Job Order Cost Accounting

Instructions
1. One year later, on April 305 2007, the perpetual inventory account showed a balance of
$593,480. The market value of the inventory on that date was determined to be
$550,220. Give the entry in general journal form to adjust the allowance accounts on
April 30, 2007.
2. Assume the same facts as in Instruction 1, except that the market value on April
30,2007, was determined to be $580,110. Give the journal entry to adjust the allowance
account.
3. Assume the same facts as in Instruction 1, except that the market value on April
30,2007, was determined to be $596,360. Give the journal entry to adjust the allowance
account.
(4.5 A) Calculate inventory at the lower of cost or market and make journal entries. (Obj. 7).
The following information relates to the raw materials inventory of the Mansmen Manu-
facturing Corporation on June 30,2007: Raw Materials Inventory (at Cost), $731,800;
Raw Materials Inventory (Market Value), $758,200.
Instructions
1. Record the journal entry needed on June 30, 2007, assuming that the company wants
to report the raw materials inventory on its balance sheet using the lower of cost or
market valuation method.
2. Record the general journal entry needed the next year on June 30, 2008, assuming the
following: The balance of the Raw Materials inventory account is $696,210; the market
value is $683,510; the company uses the lower of cost or market valuation method.
3. At the end of the following year, June 30, 2009, the balance of the Raw Materials in-
ventory account is $675,480 and the market value is $679,350. Record the necessary
journal entry, assuming that the company still uses the lower of cost or market method
of valuing its inventory.
4. Show the balance sheet presentation for the raw materials inventory and related
accounts for 2007, 2008, and 2009.
(4.6A) Prepare an income statement. (Obj. 7). The fiscal year for the Wellesley Corporation
ends on January 31, 2007. Use the data below to prepare an income statement for the cur -
rent year.

$1,458,740
96,422
95,820
99,240
844,560
192,715
120,122
19,365
99,590
Sales
Sales Returns and Allowances Finished Goods,
February 1, 2006 Finished Goods, January 31, 2007
Cost of Goods Manufactured Selling Expenses
Administrative Expenses Loss on Reduction
of Inventory to Market Provision for Income Taxes
 Chapter 4 Controlling and Valuing Inventory 115

Alternate (4.1 B) Use different inventory costing methods. (Objs. 1-3). The LeighManufacturing
Problems Company uses a perpetual inventory system to control materials.Data relating to Material
J-2 during January 2006 are given below.
Jan. 1 Balance, 1,000 units at $12.50 each.
5 Issued 400 units, Requisition 917.
9 Received 600 units at $14 each, Purchase Order 16.
13 Issued 850 units, Requisition 944.
22 Received 600 units at $14.50 each,Purchase Order 23.
29 Issued 250 units, Requisition 984.
instructions
Enter the beginning balance on a materials ledger card for each of the three inventory val-
uation methods: FIFO, LIFO, and moving average. Record each of the transactions on
each of the materials ledger cards. Round-unit costs to the nearest cent under the moving
average costing method.
(4.2B) Use different inventory costing methods. (Objs. 1-3). Dalton Furniture, a manufacturer of
office equipment, uses a perpetual inventory system to control materials. During July
2006, the following transactions took place in completing an order for chairs and desks:
July 1 Issued 135 units of Material B-42 on Materials Requisition 711.
3 Received 650 units of Material B-42 at $.88 and 650 units of Material R-18 at
$.76. These goods were ordered on Purchase Order 426.
4 Issued 135 units of Material R-18 on Materials Requisition 735.
7 Issued 165 units of Material B-42 and 165 units of Material R-18 on Materials
Requisition 749.
12 Issued 80 units of Material B-42 and 80 units of Material R-18 on Materials
Requisition 763.
21 Issued 304 units of Material B-42 on Materials Requisition 796.
26 Received 650 units of Material B-42 at $.85 and 650 units of Material R-18 at
$.79. These goods were ordered on Purchase Order 471.
31 Issued 210 units of Material B-42 and 383 units of Material R-18 on Materials
Requisition 822.
Instructions
1. The number of units on hand, the unit price, and the total amount on July 1, 2006, are
given below. Record each of the transactions on materials ledger cards. Use the FIFO
method of inventory costing.

Reorder Reorder Balance

Material Point Quantity Units Price Amount
B-42 Seats, Plywood 300 650 271 $.95 $257.45
R-18 Tops, Plastic 300 650 83 .70 58.10

2. Record each of the transactions on materials ledger cards. Use the LIFO method of
inventory costing.
3. Record each of the transactions on materials ledger cards. Use the moving average
method of inventory costing. Compute new unit prices only after each new purchase of
materials. Carry your computations to three decimal places.
116 Pa rt On e Job Order Cost Accounting

(4.3b) Calculate inventory value at the lower of cost or market. (Objs. 4-6). The
following data pertain to the raw materials inventory for the Negley Ski Company on
December 31,2006.

Market Price per

Quantity Cost per Unit Unit
Group 1Frames
Type 1 250 $ 3.00 $ 3.20
Type 2 400 4.40 4.20
Type 3 370 2.00 2.10
Group IIAssemblies
Type A 40 170.00 182.00
Type B 20 410.00 400.00
Type C 50 153.00 144.00

Instructions
Determine the amount to be reported as the inventory valuation at cost or market, whichever
is lower, under each of the following methods: (1) lower of cost or market for each item, (2)
lower of total cost or total market, and (3) lower of total cost or total market by groups.
(4.4B) Calculate inventory value at the lower of cost or market and make journal entries. (Obj.
7). The Mellon Appliance Company uses a perpetual inventory system. On April 30, 2006, its
balance sheet included the following items related to the raw materials inventory:

Raw Materials Inventory, at Cost $132,820

Deduct Allowance for Reduction of Inventory to Market 10,570
Raw Materials Inventory, at Lower of Cost or Market $122,250

Instructions
1. One year later, on April 30, 2007, the perpetual inventory account showed a balance of
$123,970. The market value of the inventory on that date was determined to be $108,930.
Give the entry in general journal form to adjust the allowance accounts on April 30,2007.
2. Assume the same facts as in Instruction 1, except that the market value on April 30,2007,
was determined to be $118,160. Give the journal entry to adjust the allowance account.
3. Assume the same facts as in Instruction 1, except that the market value on April 30, 2007,
was determined to be $126,130. Give the journal entry to adjust the allowance account.
(4.5B) Calculate inventory at the lower of cost or market and make journal entries. (Obj. 7).
The following information relates to the raw materials inventory of the Cercone Manufac-
turing Corporation on June 30, 2007: Raw Materials Inventory (at Cost), $648,100; Raw
Materials Inventory (Market Value), $619,500.
Instructions
1. Record the general journal entry needed on June 30, 2007, assuming that the company
wants to report the raw materials inventory on its balance sheet using the lower of cost or
market valuation method.
2. Record the general journal entry needed the next year on June 30, 2008, assuming the
following: The balance of the Raw Materials inventory account is $592,620; the market
value is $581,220; the company uses the lower of cost or market valuation method.
3. At the end of the following year, June 30, 2009, the balance of the Raw Materials
inventory account is $602,260 and the market value is $614,050. Record the necessary
 Ch a pte r 4 Controlling and Valuing Inventory 117

journal entry, assuming that the company still uses the lower of cost or market method of valuing its
inventory.
4. Show the balance sheet presentation for the raw materials inventory and related accounts for 2007,
2008, and 2009.
(4.6B)

Prepare an income statement. (Obj. 7). The fiscal year for the Haskell Corporation ends on January
31,2007. Use the data below to prepare an income statement for the current year.

Sales $2,105,600
Sales Returns and Allowances 48,400
Finished Goods, February 1, 2006 99,310
Finished Goods, January 31, 2007 108,670
Cost of Goods Manufactured 1,271,107
Selling Expenses 243,682
Administrative Expenses 218,238
Loss on Reduction of Inventory to Market 27,427
Provision for Income Taxes 88,288