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P9-9 (Statement and Note Disclosure, LCM, and Purchase Commitment) Garth Brooks Specialty Company

P9-9 (Statement and Note Disclosure, LCM, and Purchase Commitment) Garth Brooks Specialty Company
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Solution Guide / Answer Key:

ACC/422 (ACC422)
INTERMEDIATE FINANCIAL ACCOUNTING II
University of Phoenix (UoP)

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007).
Intermediate accounting, (12th ed.) (13th Ed.)
Hoboken, NJ: John Wiley & Sons.

Week Three (Week 3)
Chapter 9 and Chapter 10
P9-9 (Statement and Note Disclosure, LCM, and Purchase Commitment) Garth Brooks Specialty Company, a division of Fresh Horses Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1975, Brooks has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Brooks’s fiscal year, November 30, 2007, are shown below. The inventories are stated at cost before any year-end adjustments.

Finished goods $647,000
Work-in-process 112,500
Raw materials 240,000
Factory supplies 69,000
The following information relates to Brooks’s inventory and operations.
1. The finished goods inventory consists of the items analyzed below.

AND SO ON


Instructions
(a) Prepare the inventory section of Brooks’s balance sheet as of November 30, 2007, including any required note(s).
(b) Without prejudice to your answer to (a), assume that the market value of Brooks’ inventories is less than cost. Explain how this decline would be presented in Brooks’ income statement for the fiscal year ended November 30, 2007.
(c) Assume that Brooks has a firm purchase commitment for the same type of derailleur included in the raw materials inventory as of November 30, 2007, and that the purchase commitment is at a contracted price 15% greater than the current market price. These derailleurs are to be delivered to Brooks after November 30, 2007. Discuss the impact, if any, that this purchase commitment would have on Brooks’s financial statements prepared for the fiscal year ended November 30, 2007.

 

FILE: MS WORD

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