34. Zoe Company has provided the following values for its 400 units of inventory
ID: 2542994 • Letter: 3
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34. Zoe Company has provided the following values for its 400 units of inventory at the end of 2014 Item Historical cost Replacement cost Net realizable value Normal profit margin Per Unit $55.00 $35.00 $56.00 $15.80 Using lower-of-cost-or net realizable value, the per-unit reported value for Zo be: a. $35.00 b. 55.00 c. $56.00 d. $50.80 e. $55.80 The Jamison Company's inventory was destroyed on July 4, 2013, when its warehouse caught on fire early in the morning. Inventory was totally destroyed. The accounting records, which were located offsite, contained the following information: 35· Sales (1/1/13 through 7/3/13) Purchases (1/1/13 through 7/3/13) Inventory (1/1/13) Gross profit ratio 180,000 45,000 25% of cost Using the gross profit method, what is the estimated cost of the inventory that was destroyed by the fire? a. $17,500 b. $25,000 c. $30,000 d- $37,500 e. $62,500 36. At December 31, 2014, the following information was available from Gold Creek's records CostRetail 294,000 406,000 Inventory, 1/1/14 Purchases ,666,0002 2,310,000 Sales for the year totaled $2,400,000. Additional markups totaled $84,000, and markdowns amounted to $20,000. Under the conventional retail method, Gold Creek's inventory at December 31, 2014 was: a. $588,000 b. $294,000 c. $280,000 d $274,000 e $266,000Explanation / Answer
34) The inventory will be valued at lower of its historical cost or net realizable value using lower-of-cost-or net realizable value.
Historical cost per unit = $55 per unit
Net Realizable Value = $56
The lower of the above two is $55 per unit. Therefore the reported value of Zoe's inventory will be $55 per unit.
Hence the correct option is b) $55.00.
35) Gross Profit ratio = 25% of cost
Let cost = 100, then Gross Profit = $100*25% = $25
Sale Price = Cost+Gross Profit = $100+$25 = $125
Hence gross profit ratio on sales is $25/$125 or 20%.
Sales (1/1/13 through 7/3/13) = $250,000
Cost of goods sold = Sales - Gross profit on sales
= $250,000 - ($250,000*20%) = $200,000
Ending inventory = Opening Inventory+Purchases-Cost of goods sold
= $45,000+$180,000-$200,000 = $25,000
As all the inventory on july 3, 2013 is destroyed, the estimated cost of inventory that was destroyed is $25,000.
Hence the correct option is b) $25,000.
36) Total inventory value at cost = Opening Inventory+Purchases
= $294,000+$1,666,000 = $1,960,000
Total Inventory value at Retail plus markups = Opening Inventory+Purchases+Markups
= $406,000+$2,310,000+$84,000 = $2,800,000
Cost/Retail ratio = $1,960,000/$2,800,000 = 0.70 or 70%
Ending Inventory at retail = Inventory value at retail - Sales - Markdowns
= $2,800,000 - $2,400,000 - $20,000 = $380,000
Ending Inventory at cost = Ending Inventory at retail*Cost/Retail ratio
= $380,000*70% = $266,000
Therefore Gold Creek's inventory at Decemeber 31, 2014 is $266,000. Hence the correct option is e) $266,000.
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