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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Lower-of-cost-or-market inventory

Data on the physical inventory of Ashwood Products Company as of December 31 follow:

Inventory

Item

Inventory

Quantity

Market Value per Unit (Net Realizable Value)
B12 38 $ 57
E41 18 180
G19 33 126
L88 18 550
N94 400 7
P24 90 18
R66 8 250
T33 140 20
Z16 15 752

Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows:

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Instructions

Determine the inventory at cost as well as at the lower of cost or market, using the first-in, first-out method. Record the appropriate unit costs on the inventory sheet and complete the pricing of the inventory. When there are two different unit costs applicable to an item, proceed as follows:

  1. 1. Draw a line through the quantity and insert the quantity and unit cost of the last purchase.
  2. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase.
  3. 3. Total the cost and market columns and insert the lower of the two totals in the Lower of C or M column. The first item on the inventtory sheet has been completed as an example.

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To determine

Lower-of-cost-or-market value:

The lower-of-cost-or-market value is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, at its current market value (net realizable value) or at its historical cost price, whichever is less.

To determine: value of inventory using first in first out method under lower-of-cost-or-market inventory.

Explanation

The above table shows the applying the lower-of-cost-or-market method to each inventory item (B12, E41, G19, L88, N94, P24, R66, T33 and Z16). As applied on an item-by-item basis, the total of lower-of-cost-or-market method is $39,873, which is a market decline of $1,225 ($41,098 – $39,873). This market decline of $1,225 is included in cost of merchandise sold...

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