Question

At the end of the year, Randy’s Parts Co. had the following items in inventory:

Item	Quantity			Unit Cost				Unit Market Value
P1		63			$	86			$	88
P2		34				62				72
P3		82				137				125
P4		41				59				67

a. Determine the amount of ending inventory using the lower-of-cost-or-market rule applied to each individual inventory item.

b. Provide the general journal entry necessary to write down the inventory based on Requirement a. Assume that Randy’s Parts Co. uses the perpetual inventory system.

c. Determine the amount of ending inventory, assuming that the lower-of-cost-or-market rule is applied to the total inventory in aggregate.

d. Provide the general journal entry necessary to write down the inventory based on Requirement c. Assume that Randy’s Parts Co. uses the perpetual inventory system

Answer 1

a) Ending inventory using lower of cost or market rule applied to each individual inventory item :- Value of Ending Total Cost Unit market Total Market Item Quantity Unit Cost (A) value Inventory Lower Value (B) of (A or B) 5,418 88 5,544 5,418 2,108 72 2,448 2,108 137 11,234 125 10,250 10,250 2,419 67 2,747 2,419 Total ending inventory 21,179 20,989 20,195 P1 82 59 Value of ending inventory is $ 20,195/. Credit S Debit S 984 b) Account title & Description Cost of goods sold (Inventory loss) To Inventory (Entry for write down of inventory) 984 c) Ending inventory applied on basis of total inventory is $ 20,989 as total market value is lower than total cost Debit S Credit S d) Account title & Description Cost of goods sold (Inventory loss) 190 190 To Inventory (Entry for write down of inventory)