Financial Accounting for Managers

Full Answer Section

November 6, 2024:

Cash                       450
Unearned Revenue             450

Problem 2: Inventory Valuation and Adjustment

Lower of Cost and Net Realizable Value (LCNRV)

To determine the ending inventory using LCNRV, compare the unit cost and net realizable value (NRV) for each item:

Total Ending Inventory Value:

Apply the lower value for each item:

• Item A: 3,800 units * $46/unit = $174,800
• Item B: 4,200 units * $28/unit = $117,600
• Item C: 2,500 units * $31/unit = $77,500
• Item D: 1,300 units * $2/unit = $2,600

Total Ending Inventory: $174,800 + $117,600 + $77,500 + $2,600 = $372,500

Inventory Adjustment Journal Entry:

Inventory Loss               (Original Cost - LCNRV)
Inventory                    (LCNRV)

Original Cost:

• Item A: 3,800 units * $52/unit = $197,600
• Item B: 4,200 units * $28/unit = $117,600
• Item C: 2,500 units * $34/unit = $85,000
• Item D: 1,300 units * $22/unit = $28,600

Total Original Cost: $197,600 + $117,600 + $85,000 + $28,600 = $429,800

Inventory Loss: $429,800 - $372,500 = $57,300

Journal Entry:

Inventory Loss             57,300
Inventory                    372,500

Problem 3: Sara's Boutique Inventory Valuation

Specific Identification:

Sample Solution

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Problem 1: Ski West Season Pass

Financial Statement Effects:

On November 6, 2024, when Ski West sells a season pass for $450, the following financial statement effects occur:

Balance Sheet:

• Assets:
  • Increase in Cash: $450 (received from the sale)
  • Increase in Unearned Revenue: $450 (represents the liability to provide skiing access throughout the season)
• Liabilities: No change.
• Stockholders' Equity: No change.

Income Statement:

• Revenue:
  • No immediate recognition of revenue. $450 is deferred and will be recognized evenly throughout the ski season (December 1 - April 30). This is because Ski West has not yet fulfilled its obligation to provide the season pass holder with skiing access.
• Expenses: No change.

Journal Entry: