Question

Can you explain.

Question2 and LIFO method. As of December 31, 2018, the inventory subsidiary ledger shows the following ending inventory for a particular product: Lion Inc., uses perpetual inventory system Purchase date Unit Unit cost June 3 August 14 78 S.7 December5 45 $1.8 234 S1. A year-end ending inventory at December 31, 2018, however, 421 units on hand. In its financial statements, Lion Inc. values its inventories at lower-of-cost -or market (LCM). As of December 31, 2018, replacement cost of per unit of the product is $1.55. Required: Prepare the journal entries to record shrinkage loss and apply LCM rule in order to adjust the inventory records at December 31,2018 (use $67 as level of materiality

Answer 1

LIFO Method: Last in first out, it uses the assumption that last the inventory is purchased is sold first.

The inventory cost in the LIFO system will be the cost of the earliest purchase.

The value of inventory under the LIFO system will be based on the earliest price available(outdated price).

	Valuation of Inventory under LIFO
Purchase Date	Unit	Price	Amount (Unit * price)
June 3 Purchase	234	1.5	351
August 14 purchase	178	1.7	302.6
december 5 purchase (Balance inventory)*	9	1.8	16.2
Total Closing inventory	421		669.8
*inventory in December (421 total inventory - 234unit - 178unit) = 9
*Oldest inventory available will be considered in stock ie: 234 of June and 178 of August and balance of 9 unit in December

LCM method Cost or market price whichever is lower
Purchase Date	Cost of inventory	Replacement cost	Lower of the cost of Market price	Unit	Price
June 3 Purchase	1.5	1.55	1.5	234	351
August 14 purchase	1.7	1.55	1.55	178	275.9
december 5 purchase (Balance inventory)*	1.8	1.55	1.55	9	13.95
Total Closing inventory				421	640.85

At the end of the accounting period, inventory shrinkage is recorded by the following journal entry
	Debit	Credit
Cost of Goods Sold	$28.95
Inventory		$28.95
(Being srinkage in the value of inventory recognised $669.80 - $640.85 = $28.95)