A client, Blaedon Co., sells lawn mowers and garden tillers. The garden tillers are purchased from Bestbuilt Tillers and sold to customers without modification. The lawn mowers, however, are purchased from several contractors. Blaedon then makes ongoing design refinements to the mowers before selling them to customers.

 A client, Blaedon Co., sells lawn mowers and garden tillers. The garden tillers are purchased from Bestbuilt Tillers and sold to customers without modification. The lawn mowers, however, are purchased from several contractors. Blaedon then makes ongoing design refinements to the mowers before selling them to customers.

The lawn mowers cost $200. Blaedon then makes the design refinements at a cost of $85 per lawn mower. Blaedon stores the lawn mowers in its own warehouse and sells them directly to retailers at a list price of $500. Blaedon uses the FIFO inventory method. Approximately two-thirds of new lawn mower sales involve trade-ins. For each used lawn mower traded in and returned to Blaedon, retailers receive a $40 allowance regardless of whether the trade-in was associated with a sale of a year 2 or year 3 model. Blaedon's net realizable value on a used lawn mower averages $25.

At December 31, year 2, Blaedon's inventory of new lawn mowers includes both year 2 and year 3 models. When the year 3 model was introduced in September year 2, the list price of the remaining year 2 model lawn mowers was reduced below cost. Blaedon is experiencing rising costs.

Blaedon has contacted your firm for advice on how to report the carrying value of inventory, the impact of the decline in value on the year 2 models, and the effects of using the FIFO method on their December 31, year 2 financial statements.

Assume that Blaedon had the following information regarding the inventory:

Purchases    $210,000
Purchase discounts    38,000
Purchase returns    17,500
Freight-in    12,100
Freight-out    18,000
Beginning inventory    42,900
Ending inventory    34,250
Calculate the following items:

 

Calculate the following items:

1. Goods available for sale   
209,500
2. Costs of goods sold   
175,250
Rationale:

Beginning inventory        42,900
Purchases    210,000   
- Purchase discounts    (38,000)   
- Purchase returns    (17,500)   
Net purchases    154,500   
+Freight-in    12,100   
166,600
    Goods available for sale        209,500
    - Ending inventory        (34,250)
    Cost of goods sold        175,250

 

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