Question

A physical inventory of Liverpool Company taken at December 31 reveals the following.

		Per Unit
Item	Units	Cost			Market
Car audio equipment
Speakers	348	$	103		$	111
Stereos	263		124			114
Amplifiers	329		99			108
Subwoofers	207		65			55
Security equipment
Alarms	483		163			153
Locks	294		106			96
Cameras	215		325			335
Binocular equipment
Tripods	188		87			97
Stabilizers	173		108			118

Required:
1. Calculate the lower of cost or market for the inventory applied separately to each item.
2. If the market amount is less than the recorded cost of the inventory, then record the LCM adjustment to the Merchandise Inventory account.

	Per Unit Total LCM applied to: Item Units Cost Market Cost Market Individual Items Car audio equipment Speakers 348 $103 $111 Stereos 263 124 114 Amplifiers 329 99 108 Subwoofers 207 65 55 Security equipment Alarms 483 163 153 Locks 294 106 96 Cameras 215 325 335 Binocular equipment Tripods 188 87 97 Stabilizers 173 108 118 Total

• Record LCM adjustment.

Answer 1

Answer 1)
Lower of cost or market is a principle used to value the ending inventory. Under this principle,
the ending inventory is value at lower of cost and market value.
The lower of cost or market for the inventory applied seperately to each items as shown below,
		Per Unit		Total			LCM applied to:
Item	Units	Cost($)	Market($)	Cost($)	Market(S)		Individual Items($)
Car audio equipment
Speakers	348	$103	$111	$35,844	$38,628		$35,844
Stereos	263	124	114	$32,612	$29,982		$29,982
Amplifiers	329	99	108	$32,571	$35,532		$32,571
Subwoofers	207	65	55	$13,455	$11,385		$11,385
Security equipment
Alarms	483	163	153	$78,729	$73,899		$73,899
Locks	294	106	96	$31,164	$28,224		$28,224
Cameras	215	325	335	$69,875	$72,025		$69,875
Binocular equipment
Tripods	188	87	97	$16,356	$18,236		$16,356
Stabilizers	173	108	118	$18,684	$20,414		$18,684
Total				$329,290	$328,325		$316,820
Hence, the ending inventory applied seperately to each items is valued at $316,820
Answer 2)
The required entry is LCm adjustment. The total cost is $329,290 and the value of ending using
inventory is $316,820. Hence the adjustment should be made for the decrease value of ending
inventory.
	Cost of goods Sold			$        12,470
	(329290-316820)
	To Merchandize Inventory				$    12,470