At 12/31/20, the end of Lincoln Company's first year of business, inventory was $6,100 and $5,100 at cost and at market, respectively. Following is data relative to the 12/31/21 inventory of Lincoln: Original Net Net Realizable Appropriate Cost Replacement Realizable Value Less Inventory Item Per Unit Cost Value Normal Profit Value A $ .65 $ .45 B .45 .40 C .70 .75 D .75 .65 E .90 .85 Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,500 units of each item in the 12/31/21 inventory. Instructions (a) Prepare the entry at 12/31/20 necessary to implement the lower-of-cost-or-market procedure assuming Lincoln uses a contra account for its balance sheet. (b) Complete the last three columns in the 12/31/21 schedule above based upon the lower-of-cost-or-market rules. (c) Prepare the entry(ies) necessary at 12/31/21 based on the data above. (d) How are inventory losses disclosed on the income statement?
At 12/31/20, the end of Lincoln Company's first year of business, inventory was $6,100 and $5,100 at cost and at market, respectively.
Following is data relative to the 12/31/21 inventory of Lincoln:
Original Net Net Realizable Appropriate
Cost Replacement Realizable Value Less Inventory
Item Per Unit Cost Value Normal Profit Value
A $ .65 $ .45
B .45 .40
C .70 .75
D .75 .65
E .90 .85
Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,500 units of each item in the 12/31/21 inventory.
Instructions
(a) Prepare the entry at 12/31/20 necessary to implement the lower-of-cost-or-market procedure assuming Lincoln uses a contra account for its balance sheet.
(b) Complete the last three columns in the 12/31/21 schedule above based upon the lower-of-cost-or-market rules.
(c) Prepare the entry(ies) necessary at 12/31/21 based on the data above.
(d) How are inventory losses disclosed on the income statement?
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