Lower-of-cost-or-market and retail inventory method
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1. Lower-of-cost-or-market.
At 12/31/10, the end of Jenner Company's first year of business, inventory was $4,100
and $2,800 at cost and at market, respectively.
Following is data relative to the 12/31/11 inventory of Jenner:
Original Net Net Realizable Appropriate
Cost Replacement Realizable Value Less Inventory
Item Per Unit Cost Value Normal Profit Value
A $.65 $.45
B .45 .40
C .70 .75
D .75 .65
E .90 .85
Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,000 units of each item in the 12/31/11 inventory.
Instructions
(a) Prepare the entry at 12/31/10 necessary to implement the lower-of-cost-or-market
procedure assuming Jenner uses a contra account for its balance sheet.
(b) Complete the last three columns in the 12/31/11 schedule above based upon the
lower-of-cost-or-market rules.
(c Prepare the entry(ies) necessary at 12/31/11 based on the data above.
(d) How are inventory losses disclosed on the income statement?
 
2. Retail inventory method.
When you undertook the preparation of the financial statements for Telfer Company at January 31, 2011, the following data were available:
At Cost At Retail
Inventory, February 1, 2010 Markdowns $70,800 $ 98,500 35,000
Markups 63,000
Markdown cancellations 20,000
Markup cancellations 10,000
Purchases 219,500 294,000
Sales 345,000
Purchases returns and allowances 4,300 5,500
Sales returns and allowances 10,000
Instructions
Compute the ending inventory at cost as of January 31, 2011, using the retail method which approximates lower of cost or market. Your solution should be in good form with amounts clearly labeled
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