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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

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

Lower-of-cost-or-market inventory

Data on the physical inventory of Katus Products Co. as of December 31 follow:

Inventory Item Inventory Quantity Market Value per Unit (Net Realizable Value)
A54 37 $ 56
C77 24 178
F66 30 132
H83 21 545
K12 375 5
Q58 90 18
S36 8 235
V97 140 20
Y88 17 744

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

images

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:

  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 LCM column. The first item on the inventory sheet has been completed as an example.

images

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 (A54, C77, F66, H83, K12, Q58, S36, V97 and Y88). As applied on an item-by-item basis, the total of lower-of-cost-or-market method is $41,873, which is a market decline of $1,366 ($43,239 – $41,873). This market decline of $1,366 is included in cost of merchandise sold...

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