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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Lower of Cost or Market

The accountant for Murphy Company prepared the following analysis of its inventory at year end:

Chapter 6, Problem 26CE, Lower of Cost or Market The accountant for Murphy Company prepared the following analysis of its

Required:

1. Compute the carrying value of the ending inventory using the lower of cost or market method applied on an item-by-item basis.

2. Prepare the journal entry required to value the inventory at lower of cost or market.

To determine

Concept introduction:

Lower of Cost or market value method is applied to find the cost of ending inventory to be recorded in the book of account. According to this method the cost is compared with the market value and inventory is recorded with the lower amount of cost or market value.

Requirement 1:

To calculate:

The carrying value of inventory applying the Lower of Cost or market value method on item by item basis.

Explanation

The carrying value of inventory applying the Lower of Cost or market value method on item by item basis is calculated as follows:

Murphy Company
Item Units Cost per unit Net Realizable value LCM per unit Carrying Value
To determine

Concept introduction:

Lower of Cost or market value method is applied to find the cost of ending inventory to be recorded in the book of account. According to this method the cost is compared with the market value and inventory is recorded with the lower amount of cost or market value.

Requirement 2:

To prepare:

The journal entry to value the inventory on Lower of Cost or market value method.

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