Question

Del The Twinkster Company has six different categories of inventory. Ouantity, cost, market value for each inventory category is shown below: $6.25 Item Quantity Cost Per Unit Market Value Per Unit 750 $6.30 800 $8.45 $10.00 545 $13.00 $11.50 325 $32.45 $30.00 125 $50.75 $52.60 25 $65.00 $70.00 The company carries inventory at lower-of-cost-or-market applied to each individual category. Required: (a) Determined the value of ending inventory after applying the lower-of-cost-or-market rule (b) Prepare the journal entry required to adjust inventory Answer:

Answer 1

(a) Compute the value of ending inventory using spreadsheet as follows:

Hence, the value of ending inventory using LCM method is $35,433.75.

Item Quantity Cost per unit Value at cost Value at LCM $6 $6 $8 750 800 545 325 125 Market value per Lower of cost and unit market (LCM) $6.25 $8.45 $12 $11.50 $30 $30.00 $53 $50.75 $70 $65.00 $13 $32 $51 $65 $4,725 $6,760 $7,085 $10,546 $6,344 $1,625 $37,085 $4,687.50 $6,760.00 $6,267.50 $9,750.00 $6,343.75 $1,625.00 $35,433.75 Total

(b) The journal entry for inventory adjustment is as follows:

Amount Amount $1,651.25 Particulars Cost of goods sold Inventory A/C (Being downward revaluation of inventory) $1,651.25

The value of inventory as per cost basis is $37,085 while as per LCM basis is $35,433.75, hence inventory will be revalued downwards from $37,085 to $35,433.75.