Question

Question 2 Swifty Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company’s inventory records as of December 31, 2020. Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Completion & Disposal Cost/Unit Normal Profit Margin/Unit A 1,200 $8.70 $9.74 $12.18 $1.74 $2.09 B 900 9.51 9.16 10.90 1.04 1.39 C 1,100 6.50 6.26 8.35 1.33 0.70 D 1,100 4.41 4.87 7.31 0.93 1.74 E 1,500 7.42 7.31 7.77 0.81 1.16 Greg Forda is an accounting clerk in the accounting department of Swifty Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant.

Your answer is partially correct. Try again. Calculate the lower-of-cost-or-market using the individual-item approach. Lower-of-Cost-or-Market (Per unit basis) Item A $ Item B $ Item C $ Item D $ Item E $ SHOW LIST OF ACCOUNTS SHOW ANSWER LINK TO TEXT

Your answer is partially correct. Try again. Show the journal entry he will need to make in order to write down the ending inventory from cost to market. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Cost of Goods sold Method: The Loss method:

Answer 1

Selling If any items replacement cost continues to exceed net realizable value, the ceiling for market value, market value will be limited to net realizable value. Net realizable value is calculated by subtracting the completion and disposal cost per unit from the estimated selling price. Determination of the ceiling and floor : Net Estimated Completion & Realizable Normal Profit Item Disposal Value Margin/Unit Floor (C-D) Price/Unit Cost/Unit (B) (Ceiling) (D) (A) (A-B) =C 12.18 1.74 10.44 2.09 8.35 10.90 1.04 9.86 1.39 8.47 1.33 7.02 0.70 6.32 7.31 6.38 1.74 4.64 0.81 6.96 1.16 5.80 8.35 0.93 7.77 Now we will find the market value, Market value will be equal to the replacement cost unless the replacement cost exceeds the ceiling or falls below the floor. Net Market Value Replacement Realizable Item Floor (Lower of Cost/Unit (A) Value A or B) (Ceiling) (B) 10.44 9.74 9.16 9.86 9.16 6.32 6.26 7.02 6.26 4.64 4.87 6.38 4.87 5.80 7.31 6.96 6.96 9.74 8.35 8.47 Cost Now we need to compare cost and market values :- Lower of Market Cost or Item Value Market Value 9.74 8.70 9.51 9.16 6.26 6.50 6.26 4.87 4.41 4.41 6.96 8.70 9.16 6.96 7.42

Total value of inventory, using the lower of cost or market values for each item. Lower of Cost Item Qty or Market Total Value $ Value 1,200 900 1,100 8.70 9.16 6.26 10,440 8,244 6,886 1,100 4.41 4,851 1,500 6.96 10,440 40,861 Total cost of inventory is - ((1200*8.70)+(900*9.51)+(1100*6.50)+(1100*4.41)+(150047.42)) Total cost of inventory is = $ 42,130/. Value of ending inventory due to application of lower of cost or market value is = $ 40,861/. Difference of inventory reduced is = (42130-40861) = $ 1,269/. Loss method Entry :- Account title &Desciption Debit $ Credits Allowance to reduce inventory to LCM 1,269 To Inventory 1,269 (Entry for recording the inventory at lower of cost or market value) Cost of goods sold Loss method Entry :- Account title &Desciption Debit $ Credits Cost of goods sold 1,269 To Inventory 1,269 (Entry for recording the inventory at lower of cost or market value)