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Lower-of-cost-or-market & Installment Notes Payable

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Kidd's Shoes sells four styles of children's canvas tennis shoes. Information about Kidd's May 31 ending inventory of these four styles is given below:

Style Units in Ending Inventory Cost per Unit Current Replacement Cost
456 50 $20 $18
489 30 30 25
591 40 28 26
599 45 32 35

1. How much did Kidd's Shoes pay for the shoes that are in its May 31st inventory?

2. If Kidd's Shoes had to replace its ending inventory of tennis shoes, what would it cost?

3. What entry should be made to adjust Kidd's Shoes to the lower-of-cost-or market amount if LCM is applied on a total inventory basis? On an item-by-item basis?

4. Explain the effect the adjustment has on the income statement and balance sheet.

60. Installment Notes Payable

You are planning to purchase a new car...The car you want can be purchased for $26,500 plus tax, title, and license, which will total $2,500. You plan to finance the car over 5 years. Use a loan calculator to determine your car payments under the following assumptions:

1. You will make a $4,000 down payment and can obtain a loan rate for the balance at:
a. 6.5%
b. 5.8%
c. 5.0%

2. $1,500 down payment and can obtain a loan rate for the balance at:

a. 6.5%
b. 5.8%
c. 5.0%

Assume instead that you decide to finance the car over 4 years and can make $4,000 down payment. Determine your car payments if u can obtain a loan rate for the balance at:

a. 6.5%
b. 5.8%
c. 5.0%

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Solution Summary

Computations put into Excel for you and discussion in word. The lower-of-costs-or-market and installment notes are analyzed.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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