the Ending Inventory value

Sparky Company adopted Dollar Value LIFO (DVL) on January 1, 20X1 for its one inventory pool. The inventory’s value on this date was $360,000. The ending inventory valued at year-end costs for 20X1, 20X2 and 20X3 are reported below along with the price index for each year:

YearEnding Inventory at Year-end CostsSpecific Price Index
Dec 31, 20X1$407,570106
Dec 31, 20X2$439,450110
Dec 31, 20X3$427,800115

a. Determine the Ending Inventory value to be reported on Sparky’s balance sheet dated December 31, 20X3 using DVL:

Question 2

Using the information in Question #1 above, answer the following:

If Sparky purchased $1,250,000 of goods held in inventory for 20X3, determine COGS for the year ended December 31, 20X3 using Dollar Value LIFO.

Question 3

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS:

The Phoenix Company reported income before taxes of $370,000 for 20X1 and ending inventory at December 31, 20X1 of $170,000. Phoenix uses the periodic inventory system. A later audit produced the following information:

  • Merchandise costing $17,500 was shipped to Phoenix FOB shipping point on December 26, 20X1. The purchase was not recorded in 20X1 and the merchandise was excluded from the ending inventory because it was not received until January 4, 20X2.
  • On December 28, 20X1, merchandise costing $29,000 was sold to Deluxe Ltd. Deluxe had asked Phoenix to keep the merchandise until they could come and pick it up. Because the merchandise was still on the loading dock waiting for pick up at year-end, the merchandise was included in the inventory count. Phoenix has a mark-up on cost of 60%. No sale was recorded as of December 31st.
  • Phoenix sold merchandise to Sun Devil, Inc. on December 30, 20X1 for a selling price of $50,000 and terms FOB Destination. Mark up on cost for this type of merchandise is 60%. Phoenix recorded the sale on December 30th when they placed the goods on the common carrier. The goods were excluded from the physical count at year-end because they were not in the warehouse. They were still in transit at December 31, 20X1.

Determine the effect of these errors on Phoenix’s financial statements as of December 31, 20X1. Use O for overstated, U for understated, or NE for No Effect. If there is an effect, state the dollar amount. State the over/understatement first, followed by the dollar amount. Do not space between the O/U/NE and the dollar amount. For example, if Assets are understated by $7,000, record your answer at U7000.

a. Based on your analysis of all three transactions, determine the overall effect on Assets as of December 31, 20X1:

Question 4

Using the information presented in #3 above, determine the overall effect on Liabilities as of December 31, 20X1:

Question 5

Using the information presented in #3 above, determine the overall effect on Stockholder’s Equity as of December 31, 20X1

Question 6

Using the information presented in #3 above, Determine the correct ending inventory Phoenix Company should report on their year end balance sheet dated December 31, 20X1. (*Phoenix was originally reporting ending inventory at $170,000.)

Question 7

Using the information presented in #3 above, determine the correct income before taxes as of December 31, 20X1 (*Phoenix was originally reporting Income Before Taxes of $370,000):

Question 8

Sparky, Inc. follows a calendar-year end. Its financial statements for the years 20X2 and 20X1 contained errors as follows:

Ending Inventory for 20X1 was understated by $18,000

Ending Inventory for 20X2 was overstated by $33,000

No correcting entries were made at December 31, 20X2. Determine the following:

Indicate the effect on 20X2 Net Income (ignore taxes. Indicate O for Overstated; U for Understated; or NE for No Error. If your answer is overstated by $4,000, record your answer as O4000.)

Indicate the effect on 20X2 Ending Retained Earnings (enter your answer same as above).

Question 9

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (4) QUESTIONS:

Sparky, Inc. began the month of May with 2,600 units of Product X on hand at a cost of $10 per unit. During the month of May, the following transactions affecting inventory occurred:

Question 10

Using the information presented in #9 above, answer the following:

Sparky currently uses U.S. GAAP and applies Lower-of-Cost-or-Market to report their ending inventory. Due to some rapidly changing market conditions, the replacement cost of Product X at May 31st is $9.90 per unit. The estimated selling price of Product X at May 31st is $15.00 per unit. Based on past experience, the company estimates disposal cost to be $4 per unit. For the last several months, Sparky’s normal profit has held constant at 30% of selling price.

(b) After applying LCM, determine the ending inventory value Sparky should report on their balance sheet dated May 31st:

Question 11

Using the information presented in #9 and #10 above, determine the following:

(c) After applying LCM, determine the Loss on Inventory Decline (if any):

*If there is a loss, simply report the dollar amount. You do not need to use a (-) sign or ( ) parenthesis. For example, if Sparky should report a $1,000 loss, record your answer as 1000. If Sparky did not have to write down their inventory, record your answer as 0 (i.e. use the numeric character for zero)

Question 12

Using the information presented in #9 and #10 above, determine the following:

Sparky is considering adopting IFRS reporting standards, and if adopted, would determine the cost of their inventory using periodic FIFO. Using the same cost & market data as presented above, what should Sparky report for the Loss on Inventory Decline as of May 31st under IFRS after applying LCNRV?

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