In 2018 , the controller of Sytec Corporation discovered that $\$ 42,000$ of inventory purchases were incorrectly charged to advertising expense in 2017. In addition, the 2017 year-end inventory count failed to include $\$ 30,000$ of company merchandise held on consignment by Erin Brothers. Sytec uses a periodic inventory system. Other than the omission of the merchandise on consignment, the year-end inventory count was correct. The amounts of the errors are deemed to be material.

Required:

1. Determine the effect of the errors on retained earnings at January 1, 2018. Explain your answer. (Ignore income taxes.)
2. Prepare a journal entry to correct the errors.
3. What other step(s) would be taken in connection with the correction of the errors?

Goddard Company has used the FIFO method of inventory valuation since it began operations in 2015 . Goddard decided to change to the average cost method for determining inventory costs at the beginning of 2018 . The following schedule shows year-end inventory balances under the FIFO and average cost methods:

Required:

1. Ignoring income taxes, prepare the 2018 journal entry to adjust the accounts to reflect the average cost method.
2. How much higher or lower would cost of goods sold be in the 2017 revised income statement?

In 2018, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2017, CPS’s inventories were $32 million (FIFO). CPS’s records indicated that the= inventories would have totaled$23.8 million at December 31, 2017, if determined on an average cost basis.

Required:

1. Prepare the journal entry to record the adjustment. (Ignore income taxes.)
2. Briefly describe other steps CPS should take to report the change.

Bosco Company adopted the dollar-value LIFO retail method at the beginning of 2018. Information for 2018 and 2019 is as follows, with certain data intentionally omitted:

Required: Determine the missing data

Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory. Accounting records provide the following information:

$$\begin{aligned} &\text { Related retail price indexes are as follows: }\\ &\begin{array}{ll} \text { January } 1,2018 & 1.00 \\ \text { December 31, 2018 } & 1.10 \end{array} \end{aligned}$$

Required: Determine ending inventory and cost of goods sold.

Explain how the lower of cost and net realizable value rule is applied to purchase commitments.

Canova Corporation adopted the dollar-value LIFO retail method on January 1, 2018. On that date, the cost of the inventory on hand was $\$ 15,000$ and its retail value was $\$ 18,750$. Information for 2018 and 2019 is as follows:

Required:

1. What is the cost-to-retail percentage for the inventory on hand at 1/1/2018?
2. Calculate the inventory value at the end of 2018 and 2019 using the dollar-value LIFO retail method.

What are the various levels of aggregation to which the lower of cost and net realizable value rule can be applied?

SLR Corporation has $1,000$ units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows:

$$\begin{array}{lcc} & \text { Product 1 } & \text { Product 2 } \\ \hline \text { Cost } & \$ 50 & \$ 34 \\ \text { Selling price } & 70 & 36 \\ \text { Costs to sell } & 6 & 4 \end{array}$$

Determine the book value of SLR’s inventory assuming that the lower of cost and net realizable value rule is applied to individual products. What is the before-tax income effect of the adjustment?

Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2018 year-end inventory is as follows:

Required:

1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory.
2. Assuming that the company reports an inventory write-down as a line item in the income statement, for each of the LCNRV applications determine the amount of the loss.

The inventory of Royal Decking consisted of five products. Information about the December 31, 2018, inventory is as follows:

Costs to sell consist of a sales commission equal to $10 \%$ of selling price and shipping costs equal to $5 \%$ of cost. Required: What unit value should Royal Decking use for each of its products when applying the lower of cost or net realizable value (LCNRV) rule to units of ending inventory?

Air France-KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF's financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This material is also available under the Finance link at the company's website (www.airfranceklm.com). Required: AF's inventories are valued at the lower of cost or net realizable value. Does this approach differ from U.S. GAAP?

The lower of cost or net realizable value (LCNRV) approach to valuing inventory is a departure from the accounting principle of reporting assets at their historical costs. There are those who believe that inventory, as well as other assets, should be valued at NRV, regardless of whether NRV is above or below cost.

The focus of this case is the justification for the LCNRV rule for valuing inventories. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to defend the LCNRV approach against the alternatives of valuing inventory at either historical cost or NRV.

1. Each group member should consider the situation independently and draft a tentative argument prior to the class session for which the case is assigned.
2. In class, each group will meet for 10 to 15 minutes in different areas of the classroom. During that meeting, group members will take turns sharing their suggestions for the purpose of arriving at a single group argument.
3. After the allotted time, a spokesperson for each group (selected during the group meetings) will share the group’s solution with the class. The goal of the class is to incorporate the views of each group into a consensus approach to the situation.

On January 1, 2018, the Brunswick Hat Company adopted the dollar-value LIFO retail method. The following data are available for 2018:

Required: Calculate the estimated ending inventory and cost of goods sold for 2018.