Late in the year, sofware city began carry WorldCrafter, a new word processing software program. At December 31, Software City's perpetual inventory records included the following cost layers in its inventory of worldCrafter program.Purchase Date                     Quantity           Unit Cost               Total Coost Nov. 4 .......................................     8                         $400                   $3,200Dec. 12 .....................................   20                        $310                      6,200Total on hand ....................      28                                                    $9,400  a. At December 31, Software City takes a physical inventory and finds that all 28 units WordCrafter are on hand. However, the current replacement cost (whosale price) of product is $250 only per unit. Prepare the entries to record the following1. This write down of the inventory tho the lower of cost or marker at December 31.(Company policy is to charge LCM adjustment of less than $2,000 to Cost of Gods Sold and larger amounts to separate loss account)2. The cash sale of 15 WordCrafter program on January 19, at a retail price of $350 each. Assume that Software City uses the FIFO flow assumption.b. Now assume that the curretn repalcement cost of the wordCrafter program is $405 each. S physical inventory finds only 25 of these programs on hans at December 31. (For this part, return to the original information and ignore what you did in part a.)1. prepare the joournal entry to record the shrinkage loss assuming  that Software City uses the FIFO flow assupmtion2. Prepare the journal entry to record the shrinkage loss assuming that Software City uses the LIFO flow assumption.3.Which cost flow assumption(FIFO or LIFO) results in the lowest net income for the period? Would using this assumption really mean that the company's operations are less efficient? explain please

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Asked Jul 19, 2019
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Late in the year, sofware city began carry WorldCrafter, a new word processing software program. At December 31, Software City's perpetual inventory records included the following cost layers in its inventory of worldCrafter program.

Purchase Date                     Quantity           Unit Cost               Total Coost 

Nov. 4 .......................................     8                         $400                   $3,200

Dec. 12 .....................................   20                        $310                      6,200

Total on hand ....................      28                                                    $9,400  

a. At December 31, Software City takes a physical inventory and finds that all 28 units WordCrafter are on hand. However, the current replacement cost (whosale price) of product is $250 only per unit. Prepare the entries to record the following

1. This write down of the inventory tho the lower of cost or marker at December 31.(Company policy is to charge LCM adjustment of less than $2,000 to Cost of Gods Sold and larger amounts to separate loss account)

2. The cash sale of 15 WordCrafter program on January 19, at a retail price of $350 each. Assume that Software City uses the FIFO flow assumption.

b. Now assume that the curretn repalcement cost of the wordCrafter program is $405 each. S physical inventory finds only 25 of these programs on hans at December 31. (For this part, return to the original information and ignore what you did in part a.)

1. prepare the joournal entry to record the shrinkage loss assuming  that Software City uses the FIFO flow assupmtion

2. Prepare the journal entry to record the shrinkage loss assuming that Software City uses the LIFO flow assumption.

3.Which cost flow assumption(FIFO or LIFO) results in the lowest net income for the period? Would using this assumption really mean that the company's operations are less efficient? explain please                       

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Expert Answer

Step 1

a. 1. Prepare the journal entry to record the write down at December 31.

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Account title and explanation |Loss from write-down of inventory Inventory |(To write down the inventory of 28 units) Debit (S) Credit (S) Date 2,400 2,400 Workings: |Amount ($) Amount ($) Particulars Cost Replacement cost (28 unitsx$250) Redcution in carrying value 9,400 7,000 2.400

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Step 2

a. 2. Prepare the journal entry to record the sale of 15 units.

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Debit (S) Credit (S) Account title and explanation Date Cash (15 unitx$350) 5,250 Sales 5,250 |(To record the cash sales) Debit (S) Account title and explanation Cost of goods sold (15 unitxS250) Inventory |To record the cost of goods sold) Credit (S) Date 3,750 3,750 Note: The units are carried at $250 following the year-end reduction to the lower-of-cost-or-market)

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Step 3

b. 1 Prepare the journal entry to record the sh...

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Account title and explanation Cost of goods sold Inventory (3units $400) (To record the shrinkage loss of 3 units by |using FIFO flow assumption) Debit (S) Credit (S) 1,200 Date 1,200

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