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Hello everyone! Could someone solve the problem below. I would like to check my solutions. I am preparing for upcoming exam! Thanks in advance!
On 1 January 2017, PP LLC purchased 15,000 tons of raw material and recorded inventory at 10,000 USD cost per ton, which included deferral of payment to supplier for three months for an additional charge of 10,000,000 USD and 50,000,000 USD import taxes, 20,000,000 USD bonus to CEO for best price attained, and 15,000,000 USD transportation costs. Average selling cost of inventory remained 1,500 USD per ton throughout the year.
Additional information:
Dates Remaining balance (in units) Selling price (in $)
01.01.2017 15,000 12,500
31.03.2017 12,000 10,500
30.06.2017 9,000 8,500
30.09.2017 6,000 9,500
31.12.2017 3,000 6,500Required:
Compute the closing inventory on each date shown in the above table and respective gains and losses from fluctuations in NRV.Thank you for your response!
Sorry, as I am new on the site, I did not know rules.1. I am here struggling to chose the correct costs. Especially, should I keep the “bonus for ceo” in above mentioned question as a cost of inventory?
My calculation is: 150mln-10mln(additional charge)=140mln
140 mln / 15000 = 9,333.33 USD per ton. Is it correct?
2. I am not really sure what accounts will be affected by above mentioned example… I would really appreciate, if you give the suggestion about journal entries.Thank you in advance!
Hi,
Welcome to Open Tuition!
There are no rules as such, but we’re not here to answer the questions for you. The questions are for you to answer and if you get stuck then please ask. We’re not going to be there in the exam to do the questions for you unfortunately.
1. The costs included in inventory are the costs incurred in bringing the inventory to its present condition and location, therefore the bonus for the CEO is not part of the cost as it isn’t getting the inventory to its present location and condition. It is an additional operating cost if the company performs well.
2. Once you’ve measured the value of inventory at the lower of cost and NRV, we then DR Inventory (SFP) CR Closing inventory (SPL).
Thanks
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