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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

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

Garcia Company uses FIFO, and its inventory at the end of the year was recorded in the accounting records at $17,800. Due to technological changes in the market, Garcia would be able to replace its inventory for $16,500.

Required:

1. Using the lower of cost or market method, what amount should Garcia report for inventory on its balance sheet at the end of the year?

2. Prepare the journal entry required to value the inventory at the 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.

Explanation

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

The cost of the inventory ...

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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