Question

A physical inventory of Liverpool Company taken at December 31 reveals the following. Per Unit Units Cost Market $ 99 101 336 251 317 195 $ 91 112 87 53 96 42 Item Car audio equipment Speakers Stereos Amplifiers Subwoofers Security equipment Alarms Locks Cameras Binocular equipment Tripods Stabilizers 471 282 203 151 94 311 126 85 323 176 161 71 98 85 106 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

Answer 1

1.

		Per unit	Total	LCM applied to
Item	Units	Cost	market	cost	market		Individual items
Car audio equipment
Speakers	336	$91	$99	$30,576	$33,264		$30,576
Stereos	251	$112	$101	$28,112	$25,351		$25,351
Amplifiers	317	$87	$96	$27,579	$30,432		$27,579
Subwoofers	195	$53	$42	$10,335	$8,190		$8,190
Security Equipment
Alarams	471	$151	$126	$71,121	$59,346		$59,346
Locks	282	$94	$85	$26,508	$23,970		$23,970
Cameras	203	$311	$323	$63,133	$65,569		$63,133
Binocular Equipment
Tripods	176	$71	$85	$12,496	$14,535		$12,496
Stabilizers	161	$98	$106	$15,778	$17,066		$15,778
Total				$285,638	$277,723	$277,723	$266,419

2

Journal entry

Cost of goods sold	$19,219
Merchandise Inventory		$19,219